In APC and MPC the value of which parameter can be greater than one and when ?

Answer :

Value of APC can be greater than one. It happens when the level of income is low and C >Y.

Value of MPC cannot be greater than one. MPC is the ratio between additional consumption and additional income (∆C / ∆Y). Since additional consumption is only part of additional income, and after certain level of income is reached, people start saving a part of income. Since increase in consumption (∆C) is less than that of increase in income (∆Y) the value of MPC must be less than one or cannot be greater than one.

No comments:

Post a Comment