$$\begin{array} { | c | c | }
\hline \text { Disposable Income } \left( Y _ { d } \right) & \text { Consumption } ( C ) \
\hline \$ 0 & \$ 40 \
\hline 100 & 100 \
\hline 200 & 160 \
\hline 300 & 220 \
\hline 400 & 280 \
\hline
\end{array}$$ (Advanced analysis) Which of the following equations represents the saving schedule implicit in the given data?
A) S = C ? Yd.
B) S = 40 + 0.4Yd.
C) S = 40 + 0.6Yd.
D) S = ?40 + 0.4Yd.

Question

$$\begin{array} { | c | c | } 
\hline \text { Disposable Income } \left( Y _ { d } \right) & \text { Consumption } ( C ) \
\hline \$ 0 & \$ 40 \
\hline 100 & 100 \
\hline 200 & 160 \
\hline 300 & 220 \
\hline 400 & 280 \
\hline
\end{array}$$ (Advanced analysis) Which of the following equations represents the saving schedule implicit in the given data?
A) S = C ? Yd.
B) S = 40 + 0.4Yd.
C) S = 40 + 0.6Yd.
D) S = ?40 + 0.4Yd.

Quizplus · Accepted Answer

Savings (S) is calculated as Disposable Income (Yd) minus Consumption (C). The table shows that when Yd increases, C also increases, but at a slower rate, indicating a portion of Yd is saved. The base consumption (C) at Yd = $0 is $40, suggesting an autonomous consumption level of $40. The slope of the consumption function (change in C/change in Yd) is 0.6 (e.g., from Yd = $100 to Yd = $200, C increases by $60, a 0.6 increase for every dollar increase in Yd), meaning 0.4 of every additional dollar is saved. Therefore, the correct equation for savings is S = −40 + 0.4Yd, where −40 represents the initial negative savings (or dissavings) when Yd = $0, and 0.4Yd represents the portion of each additional dollar of disposable income that is saved.

(Advanced Analysis) Which of the Following Equations Represents the Saving