in a simple economy (assume there are no taxes, thus y is disposable income), the consumption function is c…

in a simple economy (assume there are no taxes, thus y is disposable income), the consumption function is c = 500 + 0.75y. thus, autonomous consumption is 500 and the marginal propensity to consume is 0.75. a consumer whose income increases by $100 will increase consumption by $75. the saving function in this economy is: s = □+□y.

in a simple economy (assume there are no taxes, thus y is disposable income), the consumption function is c = 500 + 0.75y. thus, autonomous consumption is 500 and the marginal propensity to consume is 0.75. a consumer whose income increases by $100 will increase consumption by $75. the saving function in this economy is: s = □+□y.

Answer

Explanation:

Step1: Recall the relationship between consumption and saving functions

The consumption function is $C = a+ bY$, where $a$ is autonomous consumption and $b$ is the marginal - propensity to consume. The saving function $S$ is related to the consumption function by $S=Y - C$. Given $C = 500+0.75Y$, then $S=Y-(500 + 0.75Y)$.

Step2: Simplify the saving - function expression

$S=Y - 500-0.75Y=- 500+(1 - 0.75)Y=-500 + 0.25Y$.

Answer:

$S=-500+0.25Y$