CA Foundation · Business Economics · Determination of National Income
The consumption function of an economy is C = 100 + 0.8Y (₹ crore). At an income level of ₹1,000 crore, what are the saving and the average propensity to save (APS)?
Saving is ₹100 crore and APS is 0.10. Consumption at ₹1,000 crore income is 100 + 800 = ₹900 crore, so saving is income minus consumption, ₹100 crore, and APS is 100 divided by 1,000.
- ASaving ₹100 crore; APS 0.10Correct
- BSaving ₹200 crore; APS 0.20
- CSaving ₹100 crore; APS 0.20
- DSaving ₹900 crore; APS 0.90
Explanation
C = 100 + 0.8(1000) = 900. S = Y − C = 1000 − 900 = ₹100 crore. APS = 100/1000 = 0.10. Check with S = −100 + 0.2Y = −100 + 200 = 100. The figure ₹200 crore wrongly ignores autonomous consumption, using only 0.2Y.
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