Find marginal propensity to save if consumption function is $C= 40 + 0.8y$.
Answer & explanation
Correct answer: option 2
The correct answer is option (2) : 0.2
C = $\overline{C}$ + c.Y
where C = Consumption function
$\overline{C}$= Autonomous Consumption
c= MPC
Y = Income
Thus, from the given equation, $C= 40 + 0.8y$, we can find out that MPC= 0.8
We know that MPS +MPC=1
MPS= 1- MPC
MPS= 1-0.8= 0.2