Question : Relationship of APC and APS with National Income can be represented as:
Option 1: Both APC and APS fall with increase in National Income
Option 2: Both APC and APS rise with increase in National Income
Option 3: APS fall, while APC rises with increase in National Income
Option 4: APC falls, while APS rises with increase in National Income
Correct Answer: APC falls, while APS rises with increase in National Income
Solution : The correct answer is (d) APC falls, while APS rises with an increase in National Income.
As national income increases, the average propensity to consume (APC) tends to decrease. This is because as people's income rises, they may choose to save a larger proportion of their income rather than spend it all. Therefore, APC falls with an increase in national income.
Conversely, as national income increases, the average propensity to save (APS) tends to rise. This is because people have more disposable income available for saving as their income increases. Therefore, APS rises with an increase in national income.
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