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Comprehension:

Read the passage carefully and answer the questions based on the passage:

Calculate various parameters of Aggregate Demand, Aggregate Supply and related concepts

Income (in ₹ Crore)Consumption (in ₹ Crore)
050
5075
100100
200150
300200
400250

Calculate Marginal Propensity to Save (MPS) and Average Propensity to Consume (APC) at income level of 200.

Solution

✅ Correct Option: 3

The correct option is:

MPS = 0.5; APC = 0.75


Calculation:

At the income level of Y=200Y = 200 (where consumption C=150C = 150 and previous income Y0=100Y_0 = 100, previous consumption C0=100C_0 = 100):

  1. Average Propensity to Consume (APC):

APC=CY=150200=0.75APC = \frac{C}{Y} = \frac{150}{200} = \mathbf{0.75}

  1. Marginal Propensity to Save (MPS):

ΔY=200−100=100\Delta Y = 200 - 100 = 100

ΔC=150−100=50\Delta C = 150 - 100 = 50

MPC=ΔCΔY=50100=0.5MPC = \frac{\Delta C}{\Delta Y} = \frac{50}{100} = 0.5

MPS=1−MPC=1−0.5=0.5MPS = 1 - MPC = 1 - 0.5 = \mathbf{0.5}

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