Question

Suppose the consumption function is given as C = 50 + 0.80. Write the corresponding saving function.

Answer 1

Consumption function is given as C = 50 + 0.80Y

Here, 50 is the minimum level of consumption even when Y = 0

∴ Saving function must show negative saving = −50

0.8 is the c. Since s = 1 − c

∴ Value of s = 1 − 0.8 = 0.2

Thus, the saving function will be as under:

S = −S + sY

= −50 + 0.2y