Skip to content
Question 97 of 104

Q.“Income of an economy increased from ₹ 20,000 to ₹ 50,000 crore. Savings of the economy increased from ₹ 2,000 crore to ₹ 10,000 crore.”

(i) Calculate Average Propensity to Consume (APC) and Average Propensity to Save (APS), before and after the rise in income.
(ii) Draw appropriate conclusion regarding the behaviour of Average Propensity to Consume (APC) as his income increases.
(OR)
“Under a study, examining the spending habits of a hypothetical economy, it was observed that even households with zero income managed to consume basic necessities. As the income of people increased, their consumption also increased, but not as rapidly as income.” Based on the given text and common understanding, answer the following questions :
(i) Identify and elaborate the type of consumption indicated in the first para of the above text.
(ii) Explain, the reason behind the positive slope of Aggregate Demand Curve.
Punjab PsebCBSE Class XII Board 2026Subjective· 6mImportance★★★★★
93% · 97/104 Questions
🔒 Locked · start free trial →

You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.

Start your 14-day free trial to unlock the full solution →

Part (a): Before — APC = 0.9, APS = 0.1; After — APC = 0.8, APS = 0.2; APC falls as income rises. Part (b): consumption at zero income is autonomous consumption, and the AD curve slopes upward because a positive MPC makes consumption (and total expenditure) rise with income.

Part (a): Calculating APC and APS

APC=CY,APS=SY,APC+APS=1,C=Y−SAPC = \frac{C}{Y}, \quad APS = \frac{S}{Y}, \quad APC + APS = 1, \quad C = Y - S

Before the rise in income (Y=20,000Y = 20{,}000, S=2,000S = 2{,}000):

C=20,000−2,000=18,000 croreC = 20{,}000 - 2{,}000 = 18{,}000 \text{ crore}

APC=18,00020,000=0.9,APS=2,00020,000=0.1APC = \frac{18{,}000}{20{,}000} = 0.9, \qquad APS = \frac{2{,}000}{20{,}000} = 0.1

After the rise in income (Y=50,000Y = 50{,}000, S=10,000S = 10{,}000):

C=50,000−10,000=40,000 croreC = 50{,}000 - 10{,}000 = 40{,}000 \text{ crore}

APC=40,00050,000=0.8,APS=10,00050,000=0.2APC = \frac{40{,}000}{50{,}000} = 0.8, \qquad APS = \frac{10{,}000}{50{,}000} = 0.2

Both check out, since 0.9+0.1=10.9 + 0.1 = 1 and 0.8+0.2=10.8 + 0.2 = 1. …

Start your 14-day free trial to unlock the full solution →

Unlock everything free for 14 days

  • Full step-by-step solutions
  • Concept-first explanations
  • Methods, shortcuts & mistakes
  • PYQ mapping + timed mock tests
Start 14-day free trial →See Plans & Pricing →

Full access for 14 days. No credit card required.

←Previous questionQ90 — Identify, which of the following is true at the Break Even level of In…→Next questionQ92 — Choose the correct consumption function from the options given below w…