ECONOMICS (CBSE/UGC NET)

ECONOMICS

CONSUMERS

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

For an individual, if average propensity to save is less than marginal propensity to save, what happens to saving if income is doubled?

A	Average propensity to save falls
B	Saving is doubled
C	Saving increases by more than double
D	Average propensity to save increases

Explanation:

Detailed explanation-1: -Key Takeaways. Marginal propensity to save (MPS) is an economic measure of how savings change, given a change in income. It is calculated by simply dividing the change in savings by the change in income. A larger MPS indicates that small changes in income lead to large changes in savings, and vice-versa.

Detailed explanation-2: -The average propensity to save equals the ratio of total saving to total income; the marginal propensity to save equals the ratio of a change in saving to a change in income.

Detailed explanation-3: -(i)When Marginal Propensity to Consume is greater than Marginal Propensity to Save, the value of investment multiplier will be greater than 5. (ii) The value of Marginal Propensity to Save can never be negative. So, K < 5 even if MPC > MPS. (ii) Yes, the statement is true.

Detailed explanation-4: -If the marginal propensity to save decreases, the value of the multiplier will increase.

There is 1 question to complete.