Question

Giving reasons, state whether the following statements are true or false:

(i) Value of average propensity to save can never be less than zero.

(ii) When marginal propensity to consume is zero, the value of investment multiplier will also be zero.

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Answer 1

Answer:

i). false.  

APS can have a negative value, if income is zero and consumption has a positive value.

ii). true

Similarly, when MPC = 1, the value of investment multiplier is infinity. Hence, value of investment multiplier varies between one and infinity. (i) When Marginal Propensity to Consume is zero, the value of investment multiplier will also be zero. (ii) Value of Average Propensity to Save can never be less than zero.

Explanation:

Answer 2

Answer:

(i) Value of average propensity to save can never be less than zero. - FALSE

(ii) When marginal propensity to consume is zero, the value of investment multiplier will also be zero. - TRUE

Explanation:

REASONS -

i) Calculating Average Propensity to Save

APS can never be 1 or greater than 1. That said, APS can have a negative value, if income is zero and consumption has a positive value. For example, if income is 0 and consumption is 30, then the APS value will be -0.3.

ii) Similarly, when MPC = 1, the value of investment multiplier is infinity. Hence, value of investment multiplier varies between one and infinity. (i) When Marginal Propensity to Consume is zero, the value of investment multiplier will also be zero. (ii) Value of Average Propensity to Save can never be less than zero.