Match List-I with List-II
List-I List-II (A) Marginal propensity to save (I) Slope of consumption function (B) Marginal propensity to consume (II) Value is 1 at the break even point of the economy (C) Investment Multiplier (III) Reciprocal of marginal propensity to save (D) Average propensity to consume (IV) 1- c
Choose the correct answer from the options given below:
Match List-I with List-II
| List-I | List-II |
|---|---|
| (A) Marginal propensity to save | (I) Slope of consumption function |
| (B) Marginal propensity to consume | (II) Value is 1 at the break even point of the economy |
| (C) Investment Multiplier | (III) Reciprocal of marginal propensity to save |
| (D) Average propensity to consume | (IV) 1- c |
Choose the correct answer from the options given below:
Solution
(A) Marginal propensity to save -> MPS = 1 - MPC. If 'c' represents MPC, then MPS = 1 - c, matching with (IV).
(B) Marginal propensity to consume -> MPC is the slope of the consumption function C = a + bY, where b represents MPC, matching with (I).
(C) Investment Multiplier -> The multiplier formula is K = 1/MPS, which is the reciprocal of marginal propensity to save, matching with (III).
(D) Average propensity to consume -> APC = C/Y. At the break-even point where consumption equals income (C = Y), APC = Y/Y = 1, matching with (II).
Hence, Option 4: (A) - (IV), (B) - (I), (C) - (III), (D) - (II) -> This matching correctly aligns each macroeconomic concept with its definition. MPS is complementary to MPC (1-c), MPC determines consumption behavior (slope), the multiplier effect is inversely related to savings propensity (1/MPS), and APC equals unity at equilibrium where all income is consumed (break-even point) -> correct
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