Question

If a consumption function of a hypothetical economy is given as

C = 100 + 0.6 Y ; then

(i) what will be the values of marginal propensity to consume and

marginal propensity to save for the economy ?

(ii) write the corresponding saving function

Answer 1

MPC = 0.6

MPS = (1 - 0.6) = 0.4

Saving function

S = -100 + .4Y