Q28 of 50 Page 1

For the blind candidate:

Explain the consumption function. Derive saving function from the consumption function

Consumption function C = c + MPC(Y)


Derivation of Saving function for consumption;


Subtracting each side from Y


Y - C = Y – [C+MPC(Y)] ‘


S = Y – C – MPC(Y)


Since, 1-MPC = MPS


= -C + Y – MPC(Y)


= -C + Y (1 – MPC)


= -Ć + MPS(Y)


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