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Define APS and MPS. Can the value of average propensity to save be negative? Give reason for your answer. |
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Answer» Solution :APS is the ratio of saving to income`APS=(S)/(Y)` Marginal PROPENSITY to save is the ratio of CHANGE in saving to change in income `MPS=(DeltaS)/(DeltaY)`. APS is negative when consumption is greater than income Savings BECOME negative and so APS will also be negative, i.e., when `C gt Y`. Suppose 15,000 crore are spent on consumption. When aggregate income was 12,000 crore, then savings would be ,3,000 crore as negative and `APS=(-300)/(12000)=(-)0.25` |
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