Question

Consider the following information that relates to country M. (figures ia Billions of shillings) c. The following data relates to a bypothetical economy (Figures are n Billions of shillings) Required: National income at factor cost using the expenditure approach. d. Mr Kimani has a disposable income of Sh. 10,850 per month and the MPC is 0.6, derive his Savings function.

Answer 1

The savings function represents the relationship between disposable income and savings. To derive Mr. Kimani's savings function, we can use the concept of the marginal propensity to consume (MPC) and the assumption that people need to consume something even if their income is zero.

Step-by-step explanation:

The savings function represents the relationship between disposable income and savings. To derive Mr. Kimani's savings function, we can use the concept of the marginal propensity to consume (MPC) and the assumption that people need to consume something even if their income is zero.

1. Given that the MPC is 0.6, it means that for every additional shilling of disposable income, Mr. Kimani will save 0.4 shillings.
2. His disposable income is Sh. 10,850 per month, so his savings can be calculated as: MPC x Disposable Income = 0.4 x 10,850 = Sh. 4,340

Therefore, Mr. Kimani's savings function can be expressed as: S = 0.4Y, where S is savings and Y is disposable income.