Question

if MPC is one- third of MPS and consumption at zero level is rs 40 crore ,derive the consumption and saving function. Also give the explanation

Answer 1

Explanation:

MPC=1 MPS

3

Also, MPS+MPC =1

MPS +1MPS=1

3

4MPS=1

3

MPS=0.75

MPC=0.25

CONSUMPTION FUNCTION:

C=c (bar)+MPC(Y)

=40+0.25(0)

= 40

SAVING FUNCTION:

S= -C (bar)+MPS(Y)

=-40+0.75(0)

=-40