If the consumption function is given by C = 150 + 0.85(Y - T) and T...
If the consumption function is given by C = 150 + 0.85(Y - T) and T increases by 1 unit, then savings: a. decreases by 0.85 units. b. decreases by 0.15 units. c. increases by 0.15 units. d. increases by 0.85 units.
Homework Answers
b. Decreases by 0.15 units
From the consumption function we can tell that MPC= 0.85
MPS= 1-MPC = 1-0.85= 0.15
Change in savings =- MPS*change in T = -0.15*1= -.15
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If the consumption function is given by C = 150 + 0.85(Y - T)
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