State whether the following are true or false. Give reasons:
(a) At zero level of income, savings are positive.
(b) The relationship between multiplier and MPC is inverse and that with MPS is direct.
(c) The value of APC varies from 1 to infinity.
(d) The value of MPS can be negative.
State whether the following are true or false. Give reasons:
(a) At zero level of income, savings are positive.
(b) The relationship between multiplier and MPC is inverse and that with MPS is direct.
(c) The value of APC varies from 1 to infinity.
(d) The value of MPS can be negative.
(a) False, because at zero level of income, there is some amount of consumption which means autonomous consumption. Since Y - C = S, so at zero level of income savings will be negative.
(b) False, because the relationship between multiplier and MPC is direct and that with MPS is inverse. Because Multiplier = 1/MPS = 12 - MPC.
(c) False, because the value of APC can also be less than 1 when Y > C.
(d) False. Savings and income have direct relationship. So MPS is always positive.
(a) False, because at zero level of income, there is some amount of consumption which means autonomous consumption. Since Y - C = S, so at zero level of income savings will be negative.
(b) False, because the relationship between multiplier and MPC is direct and that with MPS is inverse. Because Multiplier = 1/MPS = 12 - MPC.
(c) False, because the value of APC can also be less than 1 when Y > C.
(d) False. Savings and income have direct relationship. So MPS is always positive.
