Question 1

Refer to the figure above. What is the equation for the saving function depicted in the graph?

Accepted Answer

$$S = 0.5Y - 500$$

Question 2

At an aggregate output level of $$Y = 1,000$$ billion, what is the level of aggregate saving according to the graph?

Accepted Answer

$$0$$ billion

Question 3

If the only component of aggregate expenditure is consumption and desired investment $$I_d = 200$$, what is the equilibrium output $$Y^*$$ for the saving function shown in the graph?

Accepted Answer

$$1,000$$

Question 4

Based on the graph, what is the marginal propensity to save (MPS)?

Accepted Answer

$$0.5$$

Question 5

If aggregate output $$Y$$ falls to zero, what is the level of aggregate saving according to the graph?

Accepted Answer

$$-500$$

Question 6

Suppose the consumption function is $$C = 500 + 0.5Y. $$What is the corresponding saving function?

Accepted Answer

$$S = -500 + 0.5Y$$

Question 7

If the government increases investment by $$100$$ billion, by how much will equilibrium output increase, given the saving function in the graph?

Accepted Answer

$$200$$ billion

Question 8

If the aggregate output increases from $$1,000$$ billion to $$2,000$$ billion, what is the change in aggregate saving according to the graph?

Accepted Answer

$$500$$ billion

Question 9

What does the point where the saving function crosses the horizontal axis represent?

Accepted Answer

The break-even level of income where saving is zero

Question 10

If the marginal propensity to consume (MPC) is $$0.5$$, what is the value of the spending multiplier?

Accepted Answer

$$2$$

Understanding the Saving Function and Its Implications in Macroeconomics

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