Question

If National Income is 250 crore and Savings is 80 crore, find out Average Propensity to Consume. When National Income rises to 390 crore and Savings to 115 crore, what will be the Average Propensity to Consume and the Marginal Propensity to Save?

Answer 1

If National Income= 250 crores and Savings= 80 crore, then Consumption = 170 crores.

APC= C/Y=170/250= 0.68

If National Income increases to 390 crores and Savings to 115 crore, then Consumption = 275 crores.

APC= C/Y=275/390= 0.70

MPS= Change in Savings / Change in Income= 35/140=0.25

Change in Savings= 115-80=35

Change in Income = 390-250=140