Question

Assume in a simple economy that the level of saving is - $800 when aggregate output equals zero and that the marginal propensity to save is 0.25 Derive the saving function and the consumption function il di uit se ga O A S -800 +0.25Y and C 300 0.75Y OB S= -800 -0.25Y and C = 800 -0.75Y OC. S-800 -0.25Y and C300 +0.75Y OD. SE-800 -0.025Y and C 800 -0.075Y r nud windo Consume rodu Draw a graph showing these functions. 1.) Using the line drawing tool, draw the consumption function. Label your line 'C' 2.) Using the line drawing tool draw the saving function Label your line's Note Carefully follow the instructions above and only draw the required objects The consumption curve crosses the 45-degree line at a level of output of (Enter your response as an integer) Song Click the graph, choose a tool in the palette and follow the instructions to create your graph MacBook Pro Q Search or enter website name C

Answer 1

When aggregate output =0 , Saving= -$800

Marginal propensity to save, MPS = 0.25

MPC = 1-MPS = 1-0.25 = 0.75

So, S = -800 +0.25 Y

And C = 800 + 0.75Y

Hence,option(A) is correct.

When Y=0, C=800

When C=Y , Y= $3200

The consumption curve crosses the 45 degree line at a level of output =$3200.

By plotting this we get the consumption function as shown below:

S= -800+0.25Y

When Y=0, S= -800

When S=0, Y= $3200

By plotting this we get the saving function as shown below:

CONJAN 3600 पन्न 1200 ४०० boo12001800210630003bodi000 Agncente Income -800 12001