Question

How to find income and consumption when saving and apc are givan

Answer 1

Keynes stated that if income increases, consumption will also increase but not proportionately. For example, if disposable income (i.e., money income less taxes paid) of an individual increases by Rs.100, consumption may increase by Rs.80.

Here change in consumption induced by a change in income is called the marginal propensity to consume: ΔC/ΔY, where Δ denotes any change. In our example it is 80/100=4/5=0.80. Total consumption divided by total income gives the average propensity to consume.