Calculate the saving function

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Calculate the saving function




You are given the following data concerning an economy:




  1. Consumption function: C = 200 + 0.8Y


  2. Investment function: I = 100


  3. AD = C + I


  4. AS = Y.




  1. What are the marginal propensity to consume and the marginal propensity to save?


  2. Suppose equation (2) were changed to



I = 110



What is the new equilibrium level of income? How much does the Rs. 10 increase in planned investment change equilibrium income? What is the value of the multiplier?




  1. Calculate the saving function. Plot this saving function on a graph with eq. (2). Explain why the equilibrium income in this graph must be the same as in the part (b).



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