Question

If the National Income (Y) of a country increases by ₹ 100 crores and the National Consumption (C) increases by ₹ 80 crores, then the Marginal Propensity to Save will be equal to:

• A. 0.2
• B. 0.8
• C. 2.0
• D. 8.0

Hint:

MPS measures how much of an additional income is saved.

Answer 1

The Correct Option is A

Step 1: Define Marginal Propensity to Save (MPS).
The Marginal Propensity to Save (MPS) is the change in savings divided by the change in income: \[ MPS = \frac{\Delta S}{\Delta Y} \]
Step 2: Find savings and income change.
Since consumption (C) increased by ₹ 80 crores, savings (S) must have increased by the remaining amount of the increase in national income. Thus, savings increased by: \[ \Delta S = \Delta Y - \Delta C = 100 - 80 = 20 \, \text{crores} \]
Step 3: Calculate MPS.
Now, using the formula: \[ MPS = \frac{20}{100} = 0.2 \]
Step 4: Conclusion.
Thus, the correct answer is (A) 0.2. Final Answer: \[ \boxed{0.2} \]