If disposable income is $400 billion, autonomous consumption is $60 billion, and MPC is 0.8, what is the level of saving?
A) $20 billion.
B) $210 billion.
C) $380 billion.
D) $590 billion.

Question

Quizplus · Accepted Answer

The level of saving is calculated as disposable income minus consumption. Consumption is composed of autonomous consumption plus induced consumption (MPC times disposable income). So, consumption = $60 billion + 0.8 * $400 billion = $60 billion + $320 billion = $380 billion. Therefore, saving = disposable income - consumption = $400 billion - $380 billion = $20 billion.

If Disposable Income Is $400 Billion, Autonomous Consumption Is $60