Question

If consumption is Rs 500 Cr. and income is Rs 1,000 crore, what is APC and what does this imply?

• A. 0.5 and it implies that 50% of the income will be spent on consumption.
• B. 0.5 and it implies that 50% of the income will be spent on saving.
• C. 0.5 and it implies that 50% of the income has been spent on consumption.
• D. None of the above

Answer 1

Answer: (C)

0.5 and it implies that 50% of the income has been spent on consumption.

Average propensity to consume represents the percentage of income that is spent on consumption on an average. It can be calculated as:
APC = C/Y, where, C = consumption and Y = income.

APC = 500/1000 = 0.5
This implies that on an average 50 percent of the total income has been spent on consumption.