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CA Foundation · Business Economics · Determination of National Income

An economy's consumption function is C = 120 + 0.6Y (₹ crore). When income rises from ₹1,000 crore to ₹1,500 crore, what is the change in the average propensity to save (APS)?

APS rises from 0.28 to 0.32. At income ₹1,000 crore, consumption is 720 and saving 280, giving APS 0.28. At income ₹1,500 crore, consumption is 1,020 and saving 480, giving APS 0.32. Saving share rises as income grows.

  1. AAPS rises from 0.28 to 0.12
  2. BAPS rises from 0.12 to 0.28Correct
  3. CAPS rises from 0.12 to 0.32
  4. DAPS rises from 0.28 to 0.32

Explanation

At Y = 1,000: C = 120 + 600 = 720, S = 280, APS = 0.28. Wait, recompute: S = 1,000 - 720 = 280, so APS = 0.28. At Y = 1,500: C = 120 + 900 = 1,020, S = 480, APS = 0.32. So APS rises from 0.28 to 0.32.

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