Question

Saving function = -20 + 0.3 Y, Calculate consumption expenditure at the income level of Rs.1000 crores.

Answer 1

Answer:

Saving function is S= s + Y(1-b) where s=autonomous savings, (1-b)= marginal propensity to save, and Y= income. Comparing it to S=−40+0.4(Y), MPS= 0.4.

Multiplier(k) => Change in income / change ininvestment = 1/ MPS 

                     => change in income/ 700 = 2.5 

                     => change in income = 2.5 * 700 = 1750 crores.