Question

Given that national income is Rs 80 crore and consumption expenditure Rs 64 crore, find out average propensity of save. When income rises to Rs 100 crore and consumption expenditure to Rs 78 crore, what will be the average propensity to consume and the marginal propensity to consume? 

Answer 1

Given : 

National Income,Y=`80` 

Consumption Expenditure,=C=64 

We know, 

APS=`s/Y=(C-Y)/Y` 

Substituting the value, 

APS=`(80-64)/80=0.2` 

Now given, 

Y=100

C=78

We know, 

APC=`C/Y ` 

APC=`78/100=0.78` 

Also, 

MPC=`(ΔC)/(ΔY)=(78-64)/(100-80)=14/20=0.7`