Question : The average propensity to consume (APC) is 0.75. If disposable income is INR 6,000, what is the level of consumption?
Option 1: INR 4,000
Option 2: INR 4,500
Option 3: INR 6,500
Option 4: INR 8,000
Correct Answer:
INR 4,500
Solution : The correct answer is (B) INR 4,500
The average propensity to consume (APC) represents the ratio of consumption to disposable income. In this case, the APC is given as 0.75.
To find the level of consumption, we can multiply the APC by the disposable income.
Given: APC = 0.75
Disposable income (Y) = INR 6,000
Level of consumption = APC * Disposable income
Level of consumption = 0.75 * 6000
Level of consumption = 4500
Therefore, the level of consumption is INR 4,500.
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