If the saving function is S = - 25 + 0.4YD, then autonomous consumption is
A)0.6.
B)25.
C)10.
D)- 25.
E)15.

Question

Quizplus · Accepted Answer

The formula for autonomous consumption is C₀ = (1 - MPC) × -S where MPC is the marginal propensity to consume. Rearranging the given saving function, we get YD = (S + 25) ÷ 0.4. Substituting this into the formula, we get C₀ = (1 - 0.4) × -S = 0.6S. Therefore, C₀ = 0.6(25) = 15.

If the Saving Function Is S = - 25