-Consider the above figure. The equation for the saving function is
A) S = 40 - 0.67Yd.
B) S = 40 + 0.33Yd.
C) S = -40 + 0.67Yd.
D) S = -40 - 0.33Yd.

Question

-Consider the above figure. The equation for the saving function is
A) S = 40 - 0.67Yd. 
B) S = 40 + 0.33Yd. 
C) S = -40 + 0.67Yd. 
D) S = -40 - 0.33Yd.

Quizplus · Accepted Answer

The saving function typically takes the form S = a + bYd, where S is saving, Yd is disposable income, a is autonomous saving (the saving level when Yd = 0), and b is the marginal propensity to save. The correct equation, C) S = -40 + 0.67Yd, indicates that at Yd = 0, saving is at -40 (a negative saving implies dissaving or consuming from past savings), and for each additional unit of disposable income, saving increases by 0.67 units.

-Consider the Above Figure