Q.According to the theory of Keynesian Economics, the value of Average Propensity to Consume can never be ________. (Choose the correct alternative) (A) zero (B) unity

Concept: Average Propensity to Consume (APC) — the ratio of total consumption to total income ($APC = C/Y$).

In Keynesian theory, consumption is positive even at zero income (autonomous consumption), so APC is always positive. As income rises, APC falls but remains above zero because consumption never drops to zero. APC can equal 1 when income is exactly at the break-even point (where $C = Y$), and it can exceed 1 when income is below t …

The Concept: What is APC and Why It Matters

Average Propensity to Consume (APC) is a fundamental concept in Keynesian economics. It tells us, on average, what fraction of total income is spent on consumption. Mathematically:

where $C$ is total consumption expenditure and $Y$ is total income (or output).

The key insight from Keynes is that consumption has two parts: a fixed part that doesn't depend on income (called autonomous consumption, $a$), and a part that rises with income (called induced consumption, $bY$). So:

Here, $a > 0$ (people consume even when income is zero — they borrow or use savings), and $b$ is the marginal propensity to consume, between 0 and 1.

Now, let's see what happens to APC as income changes.

Step-by-Step Reasoning

1. APC when income is very low or zero

   If $Y = 0$, then $C = a > 0$. So $APC = \frac{a}{0}$ is undefined (division by zero). But as $Y$ approaches zero from above, $APC$ becomes very large — it shoots above 1. In fact, for any positive income less than $a$, consumption exceeds income, so $APC > 1$.

   Example: If $a = 100$ and $Y = 50$, then $C = 100 + b(50) > 100$, so $APC > 2$. Clearly, APC can be more than one.

2. APC when income equals autonomous consumption

   If $Y = a$, then $C = a + b(a) = a(1+b)$. Since $b > 0$, $C > a$, so $APC > 1$ still. For APC to be exactly 1, we need $C = Y$, i.e., $a + bY = Y$, which gives $Y = \frac{a}{1-b}$. This is possible at some positive income level. So APC can be unity (1).

3. APC when income is very high

   As $Y$ grows large, the term $a$ becomes negligible compared to $bY$. Then $C \approx bY$, so $APC \approx b$, which is less than 1 (since $b < 1$). So APC can be less than one as well.

4. Can APC ever be zero? …