Question

Distinguish between average propensity to save and marginal propensity to save. The value of which of these two can be negative and when?

Answer 1

APS refers to Average Propensity to save which defines the amount of savings in every 1 rupee of income for all levels of income which can be less than zero at income levels which are lower than the break-even point whereas Marginal Propensity to save refers to the percentage change in savings for every one rupee of change in the income. It is the ratio between the change in income and its corresponding change in savings which varies 0 to 1.