suppose that a certain country has an MPC of 0.9 and a real GDP of $400...

suppose that a certain country has an MPC of 0.9 and a real GDP of $400 billion. if its investment spending decreases by $4 billion, What is the specific Savings function in this problem is Autonomous Consumption is $1,000?

Solutions

Expert Solution

Consumption function

C=a+bY

a is autonomous consumption

b is slope

Y is income

Saving function

S= -a+sYd

As it can be seen in the consumption and saving function, a is autonomous consumption and –a is autonomous saving.

Since value of a is given $1,000.

When MPC=0.90

MPS=1-MPC

=1-0.9

=0.1

Real GDP (Y)=$400 billion

Saving function

S=-1000+0.1Y

Rahul Sunny answered 1 year ago

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