Assertion : \(APC\) can be greater than 1.
Reason (R): At very low levels of income, consumption can exceed income.
Reason (R): At very low levels of income, consumption can exceed income.
Show Hint
- Both A and R are true and R is the correct explanation.
- Both A and R are true but R is not the explanation.
- A is true, R is false.
- A is false, R is true.
The Correct Option is A
Solution and Explanation
APC (Average Propensity to Consume) is defined as the ratio of Total Consumption to Total Income: \(APC = \frac{C}{Y}\).
Step 2: Detailed Explanation:
When income is very low, people still need to spend on basic necessities (food, shelter). In such cases, consumption (\(C\)) can exceed income (\(Y\)), making \(APC = \frac{C}{Y}>1\). This situation is called Dissaving, where past savings or borrowings are used to finance consumption. The Reason correctly and completely explains the Assertion.
Step 3: Final Answer:
Both A and R are true, and R is the correct explanation of A.
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