In an economy, C = 60 + 0.8Y and autonomous investment is Rs 40 crore. What is the average propensity to save (APS) at the equilibrium level of income?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 0.08
First find equilibrium income. The APS is saving ÷ income at that income.
Given:
C = 60 + 0.8Y
Ī = 40 (Rs crore)
\( \displaystyle Y^{*} = \frac{60 + 40}{1 - 0.8} = \frac{100}{0.2} = 500 \)
\( \displaystyle C = 60 + 0.8 \times 500 = 460 \)
\( \displaystyle S = 500 - 460 = 40 \)
\( \displaystyle APS = \frac{40}{500} = 0.08 \)
The APS is 0.08. In equilibrium saving equals investment, 40, which checks the working.
Option (2) 0.2 — this is the MPS.
Option (3) 0.92 — this is the APC.
NCERT (2026-27): “Some Definitions Average propensity to consume (APC): it is the consumption per unit of income i.e., C/Y. |