Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

Identify which of the following concept can be negative?

Options:

APC

MPC

APS

MPS

Correct Answer:

APS

Explanation:

Neither MPS nor MPC can ever be negative. MPS is the ratio of additional saving (ΔS) to additional income (ΔY). Likewise, MPC is the ratio of additional consumption (ΔC) to additional income (ΔY). The ratio (ΔSY) refers to slope of the S-function which is always positive (because of positive relationship between S and Y). Likewise, the ratio (ΔC/ΔY) refers to slope of the C-function which is always positive (because of the positive relationship between C and Y).

APC can not be negative because even if there is 0 level of income, there has to be some consumption (autonomous consumption). On the other hand, APS can be negative which is nothing but dissaving. APS can be negative in a situation where S is negative (or when C > Y). This implies that the consumption is greater than the income.

Example: Y=60, C = 50, S = -10