Question

If disposable income is Rupees 1,000 crores, consumption level is Rupees 700 crores, then find the Average Propensity to Consume.

Hint:

Remember the difference between Average and Marginal Propensity to Consume. APC is Total Consumption / Total Income (\(C/Y\)), while MPC is Change in Consumption / Change in Income (\(\Delta C / \Delta Y\)).

Answer 1

Step 1: Understanding the Concept:
The question requires the calculation of the Average Propensity to Consume (APC). APC is the ratio of total consumption to total disposable income. It indicates the proportion of income that is spent on consumption.

Step 2: Key Formula or Approach:
The formula for Average Propensity to Consume (APC) is: \[ APC = \frac{\text{Consumption (C)}}{\text{Disposable Income (Yd)}} \]

Step 3: Detailed Explanation:
We are given the following values: \begin{itemize} \item Disposable Income (Yd) = Rupees 1,000 crores \item Consumption Level (C) = Rupees 700 crores \end{itemize} Now, we substitute these values into the APC formula: \[ APC = \frac{700}{1000} \] \[ APC = 0.7 \] This means that, on average, 70% of the disposable income is being consumed.

Step 4: Final Answer:
The Average Propensity to Consume (APC) is 0.7.