Question

Which of the following statements is incorrect about marginal and average propensity to save?

• A. Value of marginal propensity to save ranges from 0 to 1
• B. The sum of average propensity to save and marginal propensity to save is always equal to one
• C. At the break-even point, income and consumption are equal
• D. Value of average propensity to save rises with increase in income

Answer 1

The Correct Option is B

The sum of APS and MPS is not always equal to one. The correct relationship is APS + APC = 1, or MPS + MPC = 1.

Answer 2

The sum of APS and MPS is not always equal to one. Instead, the correct relationship is:

APS + APC = 1, or MPS + MPC = 1.

Here, APS refers to the Average Propensity to Save, and MPS refers to the Marginal Propensity to Save. Similarly, APC and MPC are their consumption counterparts, Average Propensity to Consume and Marginal Propensity to Consume, respectively.

The relationship highlights the concept that all income in an economy is either consumed or saved. Therefore, the sum of the propensities to consume and save, whether average or marginal, must always equal one, reflecting the division of income between consumption and saving.