2. Propensities

Question 1

What is the average propensity to consume?

Answer 1

Average propensity to consume refers to the ratio of consumption expenditure to the corresponding level of income.

Question 2

How do you work out ‘average propensity to consume?’

Answer 2

APC = Consumption (C) / Income (Y)

Question 3

What is the average propensity to save?

Answer 3

The APS is the ratio of saving to earnings. It tells us about the proportion of each income level that people will save i.e. they will not spend on consumption.

Question 4

How do you work out ‘average propensity to save?’

Answer 4

APS = S / Y.

Question 5

What is marginal propensity to consume?

Answer 5

The marginal propensity to consume (MPC) measures the proportion of extra income that is spent on consumption.

Question 6

How do you work out ‘marginal propensity to consume’?

Answer 6

MPC= change in C/ change in Y

Question 7

What is marginal propensity to save?

Answer 7

The MPS is the ratio of the change in saving to the change in income.

Question 8

How do you work out ‘marginal propensity to save?’

Answer 8

MPS= change in S/ change in Y

Question 9

What are the factors that determine MPC?

Answer 9

1. Income Levels
2. Temporary/Permanent
3. Interest Rates
4. Consumer Confidence