Question

Read the following statements carefully: 
Statement 1: Consumption and Savings are the components of National output of an economy.
Statement 2: Higher level of Income often leads to lower savings.
In the light of the given statements, choose the correct alternative from the following:

• A. Statement 1 is true and Statement 2 is false.
• B. Statement 1 is false and Statement 2 is true.
• C. Both Statement 1 and 2 are true.
• D. Both Statement 1 and 2 are false.

Hint:

Savings typically increase with income, but the proportion of income saved depends on the Marginal Propensity to Save (MPS).

Answer 1

The Correct Option is A

Statement 1 is correct as National output is derived from Consumption and Savings. However, Statement 2 is false because higher levels of income generally lead to higher savings due to increased disposable income.