Which of the following statement is incorrect?

The correct answer is Option (2) → The sum of Average propensity to save and marginal propensity to save is always equal to one.

 

Explanation of Each Statement:

1. Value of Marginal propensity to save ranges from 0 to 1: This statement is correct. The marginal propensity to save (MPS) indicates the proportion of additional income that is saved, and it indeed ranges from 0 (if all additional income is consumed) to 1 (if all additional income is saved).

2. The sum of Average propensity to save and marginal propensity to save is always equal to one: This statement is incorrect. The average propensity to save (APS) is the ratio of total savings to total income, while MPS is the change in savings resulting from a change in income. They do not add up to one.

3. At the break-even-point of the economy, income and consumption are equal: This statement is correct. At the break-even point, all income is consumed, and there are no savings, so income equals consumption.

4. Value of average propensity to save rises with an increase in income: This statement is generally correct. In general, as income increases, APS tends to rise as well, as people may save a larger portion of their income.