Economics HW help please! Suppose a consumption function is given as C = $175 + 0.85YD?

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Suppose a consumption function is given as C = $175 + 0.85YD. The marginal propensity to save is:





please explain how to do the problem please 🙂

4 Answers

  • MPC=dC/dYD=0.85

    MPS=1-MPC=1-0.85=0.15.The answer is B.

  • You did not give say the thing you need find. You only gave the consumption function and the marginal propensity to save, but what should we find?

  • Let’s say you increase YD (yearly disposable income) by $1.

    When this happens consumption increases by 85 cents since that is the coefficient of YD.

    The implication is that the remainder ($1-.85) was saved.

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