Question
Economics Question on Consumption and Saving Functions
Which of the following statements is incorrect about marginal and average propensity to save?
A
Value of marginal propensity to save ranges from 0 to 1
B
The sum of average propensity to save and marginal propensity to save is always equal to one
C
At the break-even point, income and consumption are equal
D
Value of average propensity to save rises with increase in income
Answer
The sum of average propensity to save and marginal propensity to save is always equal to one
Explanation
Solution
The sum of APS and MPS is not always equal to one. The correct relationship is APS + APC = 1, or MPS + MPC = 1.