Question

4.
The value of which of these two can be greater than one and when?
What is the relationship between average propensity to consume and average
propensity to save? Can the value of APS be negative ? if yes, when ?
​

Answer 1

Answer:

APC refers to Average Propensity to Consume which defines the amount of consumption in every 1 rupee of income for all level of income. APC = consumption / income = C/Y.

APS refers to Average Propensity to save which defines the amount of savings in every 1 rupee of income for all level of income. APS= savings/ income= S/Y.

Therefore, APC+ APS

=C/Y+S/Y

=C+S/Y

= Y/Y

= 1

Hence, APC+APS= 1.

APS can be less than zero at income levels which are lower than the break-even point

Answer 2

Answer:

APC refers to Average Propensity to Consume which defines the amount of consumption in every 1 rupee of income for all level of income. APC = consumption