question_answer

Which of the following cannot have a negative value? Give reasons for your answer.

(i) Average propensity to save

(ii) Marginal propensity to save

Answer:

(i) Average Propensity to Save (APS) represents the ratio between savings and income. When consumption            expenditure is more than income then it gives rise to negative savings or dis-savings. In this case, APS will be negative,                                                                                (ii) Marginal Propensity to Save (MPS) represents the ratio between change in savings and change in income. As such, its value cannot be negative, Its value ranges between 0 and 1. If the whole of income is spend on consumption, then MPS is zero. On the other hand, if whole of income is saved then MPS is one.