If the consumption function is C= 50 + .3Y. Then, the saving function will be :
Answer & explanation
Correct answer: option 2
The correct answer is option (2) : S= -50 + 0.7Y
The saving function is derived from the consumption function by subtracting consumption (C) from income (Y).
Therefore, the saving function (S) is :
S = Y - C
Given the consumption function C= 50 + 0.3 Y subtracting this into the saving function :
S= Y - (50 + 0.3Y)
S= Y - 50 - 0.3 Y
S= -50 + 0.7Y
So, the correct answer is :
S= -50 + 0.7Y