If the level of consumption is $100 billion and disposable income is $125 billion, then the
A)APC = 0.6 and saving is positive.
B)APC = 0.8 and saving is negative.
C)APC = 0.8 and saving is positive.
D)APC = 0.6 and saving is negative.

Question

Quizplus · Accepted Answer

APC (Average Propensity to Consume) is calculated by dividing consumption by disposable income.

APC = Consumption/Disposable Income

Thus, APC = 100/125 = 0.8

If APC > 1, then it means that consumption is higher than disposable income, which is not possible.

If APC = 1, then it means that all disposable income is being consumed, leaving no savings, which is also not possible.

Therefore, since APC is less than 1, savings must be positive.

Hence, Option C: APC = 0.8 and saving is positive, is the correct answer.

If the Level of Consumption Is $100 Billion and Disposable