APC + APS = 1
MPC + MPS = 1
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
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
APC + APS = 1
Here, APC = 0.8
0.8 + APS = 1
APS = 0.2
APS = Savings / Income
0.2 = Savings / 2000
Savings = 2000*0.2
Savings = 400
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
| Income | 200 | 250 | 300 | 350 | 400 |
| Saving | … | 5 | 15 | 20 | 50 |
| Consumption | 200 | 245 | 285 | 330 | 350 |
| APC | 1 | 0.98 | 0.95 | 0.94 | 0.875 |
| APS | 0 | 0.02 | 0.05 | 0.06 | 0.125 |
| Change in C | - | 45 | 40 | 45 | 20 |
| Change in S | - | 5 | 10 | 5 | 30 |
| Change in Y | - | 50 | 50 | 50 | 50 |
| MPC | - | 0.9 | 0.8 | 0.9 | 0.4 |
| MPS | - | 0.1 | 0.2 | 0.1 | 0.6 |
Explanation
-
We need to calculate Consumption
Income = Savings + Consumption
Consumption = Income - Savings - APC = Consumption/ Income
- APS = Savings/ Income
- Calculate Change in Y, Change in C, Change in S
- MPC = Change in C/ Change in Y
- MPS = Change in S/ Change in Y
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
1) Y = 50
S = 5
APC = ?
Y = C + S
50 = 5 + C
45 = C
APC = C/Y
APC = 45/50
APC = 0.9
2) Y = 60
Change in Y = 10
S = 9
Change in S = 4
APC = ?
MPS = ?
Y = C + S
60 = 9 + C
51 = C
APC = C/Y
APC = 51/60
APC = 0.85
MPS = Change in S/ Change in Y
MPS = 4/10
MPS = 0.4