Question
Given that national income is Rs.80 crore and consumption expenditure Rs.64 crore, find out average propensity to save. When income rises to Rs.100 crore and consumption expenditure to Rs.78 crore, what will be the average propensity to consume and the marginal propensity to consume?
Solution
Average propensity to save = S/Y = (Y-C)/Y
Consumer expenditure, C = 64
Income, Y= 80
APS = (80-64)/80 = 0.2
Average propensity to consume = C/Y
Increased Consumer expenditure = 78
Increased income Y = 100
APC = 78/100 = 0.78
Marginal Propensity to consume (MPC)= Change in consumer expenditure /change in income
= △C/△Y = (78-64)/(100-80) = 14/20= 0.7
