According to Keynes,the consumption-income relationship is shown as C = a + bY_D.Therefore,the saving-income relationship is A)S = a + (1 − b)Y_D. B)S = − a + (1 − b)Y_D. C)S = a + (1 − b)/Y_D. D)S = − a + (1− b)/Y_D.

Question

Quizplus · Accepted Answer

Savings is defined as income minus consumption (S = Y - C). Given the consumption function C = a + bY, substituting this into the savings function gives S = Y - (a + bY) = Y - a - bY = -a + (1 - b)Y, which matches choice B.

According to Keynes,the Consumption-Income Relationship Is Shown as C =