Check sibling questions

APC + APS = 1

MPC + MPS = 1

RELATION BETWEEN APC AND APS - Teachoo.JPG

Reason why APC+APS=1 - Teachoo.JPG

Relation between MPC and MPS - Teachoo.JPG

Reason why MPC+MPS=1 - Teachoo.JPG

lets understand it with the help of an example

Example 1

Suppose at 100 Income, Consumption is 75

Income increased to 120 and consumption became 90

Calculate Savings, APC, APS, MPC, MPS

Lets first calculate APC and APS

Income (Y) Consumption Exp Savings APC (C/Y) APS (S/Y) APC + APS
100 75 25 0.75 0.25 1

It can be seen that APC+APS=1

Now, let's calculate MPC and MPS

Income (Y) Consumption Exp Savings Increase in Income (Delta Y) Increase in Consumption Exp (Delta C) Increase in Savings  (Delta S) MPC (Delta C/Delta Y) MPS (Delta S/Delta Y) MPC + MPS
120 90 30 20 15 5 0.75 0.25 1

It can be seen that MPC+MPS=1

Example 2 Sandeep Garg Page 7.13

Suppose Income and Consumption are as follows

Income Consumption Savings
0 20 -20
100 110 -10
200 200 0
300 290 10
400 380 20
500 470 30
600 560 40

Calculate APC, APS, MPC, MPS

Answer

Calculate APC AP MPC MPS  - Teachoo.jpg

Example 2

If APC of an economy is 0.8, what should be saving at an income level of ₹ 2,000 crores?

APC = 0.8

Income (Y) = 2000

Find Savings?

View Answer

NCERT Questions

No questions in this part

Other Books

Question 1

From the following schedule, compute APC, APC MPC and MPS:

Income 200 250 300 350 400
Saving 5 15 20 50
View Answer

Question 2

If national income is Rs 50 crore and Saving Rs 5 crore, find out average propensity comsume.

When income rises to Rs 60 crores and saving to Rs 9 crore, what will be the average propensity

to consume and the marginal propensity to save?

View Answer

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Transcript

RELATION BETWEEN APC AND APS Example Suppose I earn Rs 100000 Income Out of which I spend Rs 75000 Calculate APC and APS APC = Consumption/Income = 75000/10000 = 0.75 APS = Savings/Income = 25000/100000 = 0.25 Relation between APC AND APS APC+APS=1 APC+APS = 0.75+0.25 = 1 Reason why APC+APS=1 We know that Income=Consumption + Savings Y=C+S Dividing both sides by Y Y/Y=C/Y+S/Y 1=C/Y+S/Y 1=APC+APS APC+APS=1 Relation between MPC and MPS Example Suppose at 100000 Income, Consumption is 75000 (Savings 25000) My Income Increased to 120000 Consumption became 80000 (Savings 40000) Calculate MPC and MPS MPC = Change in Consumption /Change in Income = 5000/20000 = 0.25 MPS = Change in Savings /Change in Income = 15000/20000 = 0.75 Relation between MPC AND MPS MPC+MPS=1 MPC+MPS =0.25+0.75 = 1 Reason why MPC+MPS=1? We know that Income=Consumption + Savings Change in Income=Change in Consumption + Change in Savings ΔY=ΔC + ΔS Dividing both sides by ΔY ΔY/ΔY=ΔC/ΔY + ΔS/ΔY 1=ΔC/ΔY + ΔS/ΔY 1=MPC+MPS MPC+MPS=1

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CA Maninder Singh is a Chartered Accountant for the past 12 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.