If National Income is Rs 90 crore and consumption expenditure is Rs 81 crore, find out Average Propensity to Save. When income rises to Rs 100 crore and consumption expenditure to Rs 88 crore, what will be the Marginal Propensity to Consume and Marginal Propensity to Save?
Here, in first condition, Y = Rs 90 crore
C = Rs 81 crore
Average Propensity to Save
APS = S / Y=Y-C / Y = 90-81 / 90 = 0.10
Again, when the income and consumption expenditure rise,
Y = Rs 100 crore C=Rs 88 crore
∆C =88 - 81 =Rs 7 crore ∆Y =100-90 = Rs 10 crore
Marginal Propensity to Consume (MPC)
= ∆C / ∆Y = 7 / 10 = 0.70
Again, Marginal Propensity to Save (MPS)
=1-MPC =1-0.7 =0.30