For the consumption function C = 30 + 0.9Y, by how much does saving rise when income rises by Rs 200 crore?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Rs 20 crore
The MPS tells how much of each extra rupee of income is saved.
MPS = 1 − c = 1 − 0.9 = 0.1
Rise in saving = 0.1 × 200 = Rs 20 crore
Option (1) Rs 180 crore — Incorrect. This is the rise in consumption (0.9 × 200).
Option (2) Rs 30 crore — Incorrect. This is autonomous consumption. It does not change with income.
Option (3) Rs 200 crore — Incorrect. This is the whole rise in income.
NCERT (2026-27): “4.1.1 Consumption … Let us also look at another dimension of this, savings. Savings is that part of income that is not consumed. … We define the marginal propensity to save (MPS) as the rate of change in savings as income increases. …” “Some Definitions Marginal propensity to save (MPS): it is the change in savings per unit change in income. It is denoted by s and is equal to 1 − c. It implies that s + c = 1.” |