Introduction to Economics –ECO401
VU
incentive to keep one’s money in the bank and earn interest thereon increases as the return on that money increases. CALCULATION OF APC, APS & MPC, MPS • Average propensity to consume: APC = C / Yd • Average propensity to save: APS = S / Yd Or APS = 1 – APC • When Yd = $500 billion APC = 1 • When Yd > $500 billion APC < 1 • Marginal propensity to consume: MPC = ∆C / ∆Yd • Marginal propensity to save: MPS = ∆S / ∆Yd Or MPS = 1 – MPC
APS = 0 APS > 0
APC = C/Yd 500/500=1.0
APS 0
Yd 500
C 500
MPC(∆C/∆Yd)
540/500=0.98
0.02
550
540
580/600=0.97
0.03
600
580
40/50=0.8 40/50=0.8
620/650=0.95
0.05
650
620
660/700=0.94
0.06
700
660
700/750=0.93
0.07
750
700
740/800=0.92
0.08
800
740
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40/50=0.8 40/50=0.8 40/50=0.8 40/50=0.8
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