The structural model of an economy is given below, C=400+0.8Yd,. I=350,. G=450. ,. T=200
Derive the savings function?
"\\bold {Answer}"
"S = -400+0.2Y_{d}"
"\\bold {Solution}"
Savings is the excess of income not consumed. Income is either consumed or saved. Therefore, the sum of household consumption and savings should total disposable income. That is,
"C + S = Y_{d}" Where C represents household consumption expenditure, S represents savings and Yd is the disposable income. Thus,
"C + S = Y_{d}"
"(400 + 0.8Y_{d}) + S = Y_{d}"
"=> 400+0.8Y_{d} + S = Y_{d}"
"=> S = -400 + Y_{d} - 0.8Y_{d}"
"=> S = -400 +(1-0.8)Y_{d}"
"=> \\bold {S = -400 + 0.2Y_{d}}"
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