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Question
If National income is Rs. 50 crore and Saving Rs. 5 crore, find out average propensity to consume. When income rises to Rs. 60 crore and saving to Rs. 9 crore, what will be the average propensity to consume and the marginal propensity to save?
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Solution
APC refers to Average Propensity to Consume which
defines the amount of consumption in every 1 rupee of income for all level of
income.
If Income= Rs. 50 crores and savings= Rs. 5 crore, then consumption = Rs. 45 crores.APC= 45/50= 0.9.If Income increases to Rs. 60 crores and savings to Rs. 9 crore, then consumption = Rs. 51 crores.
APC= 51/60= 0.85.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.
MPS= change in savings / change in income= 4/10= 0.4
APC refers to Average Propensity to Consume which
defines the amount of consumption in every 1 rupee of income for all level of
income.
If Income= Rs. 50 crores and savings= Rs. 5 crore, then consumption = Rs. 45 crores.APC= 45/50= 0.9.
If Income increases to Rs. 60 crores and savings to Rs. 9 crore, then consumption = Rs. 51 crores.
APC= 51/60= 0.85.
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.
MPS= change in savings / change in income= 4/10= 0.4
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