question_answer

If National Income is Rs. 50 crore and Saving Rs. 5 crore, find out average propensity to consume. When income rises to Rs. 60 crore and saving to Rs. 9 crore, what will be the average propensity to consume and the marginal propensity to save?

Answer:

Given:

National Income, \[Y=50\]

Saving, \[S=5\]

We know,

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

Substituting the values,

\[APC=\frac{50-5}{50}0.90\]

Now given,

Y = 60

S = 9 we know

\[APC=\frac{C}{Y}=\frac{Y-S}{Y}=\frac{60-9}{60}=0.85\]

Now,

\[MPS=\frac{\Delta S}{\Delta Y}\]

Or,        \[MPS=\frac{9-5}{60-50}=\frac{4}{10}=0.40\]