Thursday, July 9, 2009

Given that C = 1000 + 0.60Y, if the level of disposable income is $1000 the level of saving is:?

I have a final tomorrow and was hoping someone can explain why the answer is -$600

Given that C = 1000 + 0.60Y, if the level of disposable income is $1000 the level of saving is:?
1000+0.6Y


C=Ae+MPC*Y


Ae-Autonomous expenditures (can't be cut - some sort of minimal poverty level)


MPC - marginal propensity to consume


MPC=1-MPS


MPS- marginal propensity to save (out of disposable income)


Y - disposable income (after taxes)





Consumption can't be negative


1000+0.6*1000=1000+600=1600





But income is only 1000 so it means that person consumes more than earns and 1600-1000=600 is coming from saving.


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