Question

If households save rs 500 crores out of an additional income of rs 5000 crores then calculate MPC

Answer 1

MPC means Marginal Propensity to Consume

MPC lies between 0 to 1

MPC 1 means all increases income has been consumed , no saving done out of additioonal income

MPC 0 means all the additional income has been saved , No additional expense done out of additional income

Income increased = Rs 5000 crore

Savings out of increased anount = Rs 500 crore

Consumption increased of additional income = 5000 - 500 = Rs 4500 crore

MPC = Increase in consumption / increase in Income

MPC = 4500/5000

=> MPC = 9/10

=> MPC = 0.9

Answer 2

Answer:

"MPC (Marginal propensity to consume) is the additional consumption when income is increased by one unit. MPC is always between 0 and 1. Here consumption is denoted by C, savings by S and income by Y.

Here additional income is 5000 crores and savings is 500 crores so consumption should be 5000-500(=4500).

MPC = ∆C/∆Y

= 4500/5000 = 0.9

Therefore, MPC is 0.9.

"

Explanation: