If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then saving:
A)decreases by 0.85 units.
B)decreases by 0.15 units.
C)increases by 0.15 units.
D)increases by 0.85 units.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is 0.85, so the marginal propensity to save (MPS) is 1 - 0.85 = 0.15. Therefore, if income (Y) increases by 1 unit, saving increases by 0.15 units.

If the Consumption Function Is Given by C = 150