When consumption function is C = 100 + 0.65 Y, then savings function will be?
Answer & explanation
Correct answer: option 3
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