Consider the following statements regarding the relationship between MPC and MPS: 1. If MPC is 0.8, then MPS is 0.2. 2. An increase in MPS implies an increase in the slope of the consumption function. 3. The sum of Average Propensity to Consume (APC) and Average Propensity to Save (APS) is always equal to 1. Which of the statements given above is/are correct?

The correct option is 1 and 3 only. Explanation In macroeconomics, total income (Y) is disposed of in two ways: consumption (C) and saving (S). Consequently, any change in income ($\Delta Y$) results in a change in consumption ($\Delta C$) and a change in saving ($\Delta S$). The Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) represent the fractions of additional income consumed and saved, respectively. - Statement 1 is Correct: The relationship between MPC and MPS is derived from the income identity $\Delta Y = \Delta C + \Delta S$. Dividing by $\Delta Y$, we get $1 = MPC + MPS$. Therefore, if $MPC = 0.8$, then $MPS = 1 - 0.8 = 0.2$. - Statement 2 is Incorrect: The slope of the consumption function is determined by the MPC ($\Delta C / \Delta Y$). Since $MPC + MPS = 1$, an increase in MPS necessarily implies a decrease in MPC. A decrease in MPC results in a decrease (flattening) of the slope of the consumption function, not an increase. An increase in MPS would increase the slope of the saving function. - Statement 3 is Correct: The Average Propensity to Consume (APC) is the ratio of total consumption to total income ($C/Y$), and the Average Propensity to Save (APS) is the ratio of total saving to total income ($S/Y$). Since $Y = C + S$, dividing both sides by $Y$ yields $1 = C/Y + S/Y$, which means $APC + APS = 1$. Key Takeaway: The sum of marginal propensities ($MPC + MPS$) and the sum of average propensities ($APC + APS$) are always equal to unity (1), as income is strictly classified into consumption and saving in this model.

NCERT Class 12 Economics — Chapter 6: Determination of Income and Employment

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Consider the following statements regarding the relationship between MPC and MPS:

If MPC is 0.8, then MPS is 0.2.
An increase in MPS implies an increase in the slope of the consumption function.
The sum of Average Propensity to Consume (APC) and Average Propensity to Save (APS) is always equal to 1.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A1, 2 and 3
B2 only
C1 and 2 only
D1 and 3 only

Did you get this right?

Solution

The correct option is 1 and 3 only.

Explanation

In macroeconomics, total income (Y) is disposed of in two ways: consumption (C) and saving (S). Consequently, any change in income ($\Delta Y$) results in a change in consumption ($\Delta C$) and a change in saving ($\Delta S$). The Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) represent the fractions of additional income consumed and saved, respectively.

Statement 1 is Correct: The relationship between MPC and MPS is derived from the income identity $\Delta Y = \Delta C + \Delta S$. Dividing by $\Delta Y$, we get $1 = MPC + MPS$. Therefore, if $MPC = 0.8$, then $MPS = 1 - 0.8 = 0.2$.
Statement 2 is Incorrect: The slope of the consumption function is determined by the MPC ($\Delta C / \Delta Y$). Since $MPC + MPS = 1$, an increase in MPS necessarily implies a decrease in MPC. A decrease in MPC results in a decrease (flattening) of the slope of the consumption function, not an increase. An increase in MPS would increase the slope of the saving function.
Statement 3 is Correct: The Average Propensity to Consume (APC) is the ratio of total consumption to total income ($C/Y$), and the Average Propensity to Save (APS) is the ratio of total saving to total income ($S/Y$). Since $Y = C + S$, dividing both sides by $Y$ yields $1 = C/Y + S/Y$, which means $APC + APS = 1$.

Key Takeaway:

The sum of marginal propensities ($MPC + MPS$) and the sum of average propensities ($APC + APS$) are always equal to unity (1), as income is strictly classified into consumption and saving in this model.

Your note

More from Chapter 6: Determination of Income and Employment

With reference to the government sector in the determination of income, consider the following statements: 1. Government expenditure adds to the aggregate demand similar to investment and consumption. 2. Taxes imposed by the government increase the disposable income of households. 3. In the absence of indirect taxes, the GDP is identically equal to the National Income. Which of the statements given above is/are correct?

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Match List I with List II and select the correct answer using the code given below: List I | List II A. Excess Demand | 1. Amplifies changes in autonomous expenditure B. Deficient Demand | 2. Leads to a decline in prices in the long run C. Multiplier | 3. Signals that supply exceeds demand D. Inventory Accumulation | 4. Leads to a rise in prices in the long run

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Consider the following statements regarding Savings in an economy: 1. Savings is defined as the portion of income that is used for tax payments. 2. The Marginal Propensity to Save (MPS) is the change in savings per unit change in income. 3. If the Marginal Propensity to Consume (MPC) is 1, the Marginal Propensity to Save (MPS) will be 0. Which of the statements given above is/are correct?

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What does "Negative Inventory Investment" signify in an economy? 1. A rise in the stock of finished goods. 2. A depletion of existing stock to meet excess demand. 3. A situation where planned sales are less than actual sales. Which of the statements given above is/are correct?

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With reference to the consumption function in an economy, consider the following statements: 1. Autonomous consumption is the consumption expenditure that occurs only when income is positive. 2. Induced consumption is the portion of consumption that varies directly with the level of income. 3. The marginal propensity to consume determines the rate at which induced consumption changes as income changes. Which of the statements given above is/are correct?

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The correct option is 1 and 3 only.

Explanation

Statement 1 is Correct: The relationship between MPC and MPS is derived from the income identity $\Delta Y = \Delta C + \Delta S$. Dividing by $\Delta Y$, we get $1 = MPC + MPS$. Therefore, if $MPC = 0.8$, then $MPS = 1 - 0.8 = 0.2$.
Statement 2 is Incorrect: The slope of the consumption function is determined by the MPC ($\Delta C / \Delta Y$). Since $MPC + MPS = 1$, an increase in MPS necessarily implies a decrease in MPC. A decrease in MPC results in a decrease (flattening) of the slope of the consumption function, not an increase. An increase in MPS would increase the slope of the saving function.
Statement 3 is Correct: The Average Propensity to Consume (APC) is the ratio of total consumption to total income ($C/Y$), and the Average Propensity to Save (APS) is the ratio of total saving to total income ($S/Y$). Since $Y = C + S$, dividing both sides by $Y$ yields $1 = C/Y + S/Y$, which means $APC + APS = 1$.

Key Takeaway: