question_answer

If national income is Rs. 90crore and consumption expenditure 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.

Answer:

Given:

National Income, Y = 90

Consumption Expenditure, C = 81

We know,

\[APS=\frac{S}{Y}=\frac{Y-C}{Y}\]

Substituting the values,

\[APS=\frac{90-81}{90}=0.1\]

Now given,

Y = 100

C = 88

We know,

\[MPC=\frac{\Delta C}{\Delta Y}\]

Or,        \[MPC=\frac{88-81}{100-90}=\frac{7}{10}=0.7\]

Now,

MPS = 1 - MPC

or,        MRS \[=1-0.7\]

or,        MPS = 0.3