Q.Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from those given below: Assertion (A): The maximum value of Marginal Propensity to Save (MPS) can be unity. Reason (R): At the break-even level of income, savings are zero. Alternatives: (A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A). (B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). (C) Assertion (A) is true, but Reason (R) is false. (D) Assertion (A) is false, but Reason (R) is true.

This question tests your understanding of consumption and saving behaviour in macroeconomics, not consumer rights.

Start with the Assertion. The Marginal Propensity to Save (MPS) measures the fraction of an additional rupee of income that households save. Since every rupee of income is either consumed or saved, MPC + MPS = 1. If MPC = 0 (households consume nothing out of an extra rupee), then MPS = 1. While this is an extreme theoretical case, it is mathematically possible, so Assertion (A) is true.

Now the Reason. The break-even level of income is the point where consumption exactly equals income, meaning households neither save nor dissave—savings are indeed zero at this point. Reason (R) is true. …

The question asks us to evaluate two independent propositions about consumption and saving behaviour, then decide whether one explains the other. Start with the concepts.

Marginal Propensity to Save (MPS) measures the fraction of an additional rupee of income that a household chooses to save rather than consume. Formally, MPS = ΔS / ΔY, where ΔS is the change in saving and ΔY the change in income. Because every rupee of income is either consumed or saved, MPC + MPS = 1 always holds. MPC (Marginal Propensity to Consume) lies between 0 and 1 in normal circumstances, so MPS also lies between 0 and 1. But can MPS reach the upper boundary of 1?

Yes. If a household decides to save every additional rupee — perhaps because it has already met all consumption needs or faces extreme uncertainty — then MPC = 0 and MPS = 1. This is an extreme but theoretically valid case. Assertion (A) is therefore true.

Now turn to the break-even level of income. This is the income level at which consumption exactly equals income, so that saving is zero (S = Y − C = 0). Below break-even, consumption exceeds income (dissaving or borrowing); above it, income exceeds consumption and positive saving begins. The break-even point is a snapshot, a single income level, not a statement about marginal behaviour. Reason (R) is also true. …