At an income of Rs 1,000 crore, the average propensity to consume (APC) of an economy is 0.9. Its marginal propensity to consume is 0.6. If income rises to Rs 1,200 crore, what will the average propensity to save (APS) be?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 0.15
APC gives total consumption at one income. The MPC tells how much of the extra income is consumed. APS = saving ÷ income.
Given:
Y = 1,000
APC = 0.9, so C = 900
MPC = 0.6
New Y = 1,200
\( \displaystyle C_{new} = 900 + 0.6 \times 200 = 1{,}020 \)
\( \displaystyle S_{new} = 1{,}200 - 1{,}020 = 180 \)
\( \displaystyle APS = \frac{180}{1{,}200} = 0.15 \)
The APS is 0.15.
Option (1) 0.4 — this is the MPS.
Option (2) 0.1 — this is the old APS at an income of Rs 1,000 crore.
NCERT (2026-27): “Some Definitions Marginal propensity to consume (MPC): it is the change in consumption per unit change in income. It is denoted by c and is equal to ΔC/ΔY. |