Question

Distinguish between marginal propensity to consume and marginal propensity to save. What is the relationship between the two?

Answer 1

APC can be > 1 in situation when C > Y

Average Propensity to Consume (APC)	Marginal Propensity to Consume (MPC
1. It refers to the ratio of consumption expenditure (C) to the corresponding level of income (Y) at a point of time. APC = C/Y	1. When income increases APC falls but at a rate less than that of MPC.
2. It refers to the ratio of change in consumption expenditure (DC) to change in total income (DY) over a period of time. MPC = DC/DY	2. When income increases, MPC falls but at a rate more than that of APC.