Income Determination Test - 12

b stands for MPC. So, when b is less than 1,evidently 1-b is positive or 1-b>0

We call f(x) an increasing function of x, as x increases , f(x) also increases. 

We know that saving is a function of income.So, as income increases saving also increases.

Thus, saving is an increasing function of income.

Value of APS is negative when consumption expenditure is greater than income.For example , if income = Rs.1000, consumption = 1200.

Then, saving = - 200. (negative saving)

APS = - 200/1000= - 0.2

When consumption expenditure exceeds income,we have negative savings.

Thus, APS being function of saving is negative.

First need of a person is cosumption, when consumption gets over or his basic wants are satisfied, he starts saving a part. But, saving being function of income, depends on the latter.So, when income level is low, cosumption is not over, and exceeds income.Thus , leads to negative saving.

Yes, APC can be greater than 1.It happens in such situations where the level of income is so low that cosumption is greater than income.

APC=C/Y

APC>1 when C>Y.

APC=C/Y

APC>1 when C>Y.

APC=1-APS

APC=1-(-APS)

APC=1+APS

So, APC>1 when APS is negative.