Question

Suppose in an imaginary economy, autonomous consumption = ₹ 500 crore and marginal propensity to consume = 0.8. The saving function for the economy would be _________ .  

• A. \( 500 + 0.8Y \)
• B. \( -500 + 0.8Y \)
• C. \( 500 + 0.2Y \)
• D. \( -500 + 0.2Y \)

Hint:

The saving function can be calculated using \( S = Y - C \), where \(C\) is the consumption function.

Answer 1

The Correct Option is D

The consumption function is given as:  C = 500 + 0.8Y 
The saving function (S) is derived as:  S = Y - C 
Substituting (C) into the equation:  S = Y - (500 + 0.8Y) = -500 + 0.2Y