If National Income is Rs 50 crore and saving is 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 Marginal Propensity to Save?
Here, in first condition,
Y = Rs 50 crore S = Rs 5 crore
Hence, C = F-S = 50-5=Rs 45 crore
Average Propensity to Consume C 45
APC = C / Y = 45 / 50 = 0.90
Again, when income and savings rise,
Y = Rs 60 crore . S=Rs 9 crore
Average Propensity to Consume (APC) = C / Y = Y-S / Y = 60-9 / 60 = 0.85
Again, ∆S = 9-5 = Rs 4 crores
∆Y = 60-50 = Rs 10 crores
Hence, Marginal Propensity to Save,
MPS = ∆S / ∆Y = 4 / 10 = 0.40