advanced microeconomics

Question

Give that S= -25+0.6Yd derive the consumption function and illustrate the result on a curve.

Answer 1

Disposable income can either be spent or saved or Yd=C+S since S = -25 + (6/10) Yd

We have Yd= C -25 +6/10 Yd or 4/10Yd= -25+C

or

C= 25 + (4/10)YD Consumption is linear in disposable income with intercept = 25 and slope = 4/10