question_answer

Given that national income is Rs. 80 crore and consumption expenditure Rs. 64 crore, find out average propensity of save. When income rise 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:

Given:

National Income, Y = 80

Consumption Expenditure, C = 64

We know,

APS = \[\frac{S}{Y}=\frac{C-Y}{Y}\]

Substituting the values,

APS = \[\frac{80-64}{80}=0.2\]

Now given,

Y = 100

C = 78

We know,

APC = \[\frac{C}{Y}\]

APC = \[\frac{78}{100}=0.78\]

Also,

\[MPC=\frac{\Delta C}{\Delta Y}=\frac{78-64}{100-80}=\frac{14}{20}=0.70\]