Read the following statements carefully: Statement 1: Marginal Propensity to Consume (MPC) exhibits the consumption per …
Read the following statements carefully:
Statement 1: Marginal Propensity to Consume (MPC) exhibits the consumption per unit of income.
Statement 2: As the national income of a country rises, the proportionate increase in the consumption is always more than the increase in the income.
Both Statements 1 and 2 are false.
Statement 1 is False: Marginal Propensity to Consume (MPC) represents the change in consumption per unit change in income (ΔC/ΔY). Consumption per unit of income is the Average Propensity to Consume (APC).
Statement 2 is False: According to Keynesian theory, as national income rises, consumption increases, but the proportionate increase in consumption is generally less than the increase in income (MPC < 1), as some part of the additional income is saved.
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