Question

APC and MPC are two parameters. Which of these parameters can be greater than one, and when?

Answer 1

The value of APC can be greater than one. It happens when the level of income is low and $\text{C}>\text{Y}$. The value of MPC cannot be greater than one. MPC is the ratio of additional consumption to additional income $\left(\frac{\Delta \text{C}}{\Delta \text{Y}}\right)$. Since additional consumption $\left(\Delta \text{C}\right)$ is only a part of the additional income and cannot be greater than the additional income itself, $\left(\Delta \text{Y}\right),\left(\frac{\Delta \text{C}}{\Delta \text{Y}}\right)$ cannot be greater than one.