Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

When consumption function is C = 100 + 0.65 Y, then savings function will be?

Options:

S = 100 + 0.35 Y

S = -100 + 0.65 Y

S = -100 + 0.35 Y

S= 75 + 0.35 Y

Correct Answer:

S = -100 + 0.35 Y

Explanation:

From the consumption function given in the question, we can see that autonomous consumption is 100 and MPC = 0.65, so MPS = 0.35. So, savings function is expressed as negative autonomous consumption + MPS * Income
S = -100 + 0.35 Y

Also,

C + S = Y

S = Y - C

S = Y - (100 + 0.65Y )

S = Y - 100 - 0.65Y

S =  -100 + 0.35Y