Match the LIST-I with LIST-IILIST-ILIST-IIA.Marginal Propensity to Sa…

The correct answer is Option (2) → A-IV, B-II, C-III, D-I

Out of every rupee of income, part is consumed and the rest saved. Dividing the whole consumption or saving by the whole income gives the average propensities, APC and APS. Dividing the change in consumption or saving by the change in income gives the marginal propensities, MPC and MPS.

(A) Marginal Propensity to Save (MPS) — this matches (IV) Change in savings per unit change in income.

• MPS = ΔS ÷ ΔY

(B) Average Propensity to Save (APS) — this matches (II) Savings per unit of income.

• APS = S ÷ Y

(C) Marginal Propensity to Consume (MPC) — this matches (III) Change in consumption per unit change in income.

• MPC = ΔC ÷ ΔY

(D) Average Propensity to Consume (APC) — this matches (I) Consumption per unit of income.

• APC = C ÷ Y

Take an example in which income rises from Rs. 100 to Rs. 200 and consumption from Rs. 80 to Rs. 150, so that saving (income less consumption) rises from Rs. 20 to Rs. 50.

• Change in income, ΔY = 200 − 100 = Rs. 100

• Change in consumption, ΔC = 150 − 80 = Rs. 70

• Change in saving, ΔS = 50 − 20 = Rs. 30

The marginal propensities use these changes:

• MPC = ΔC ÷ ΔY = 70 ÷ 100 = 0.7

• MPS = ΔS ÷ ΔY = 30 ÷ 100 = 0.3

The average propensities use the levels at the income of Rs. 200:

• APC = C ÷ Y = 150 ÷ 200 = 0.75

• APS = S ÷ Y = 50 ÷ 200 = 0.25

Income is either consumed or saved, so MPC + MPS = 1 and APC + APS = 1.

Note: A same/similar question was asked in CUET (UG) in the papers below.

* A similar question.