Question

Match List-I with List-II:
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Choose the correct answer from the options given below:

• (A) - (I), (B) - (II), (C) - (III), (D) - (IV)
• (A) - (II), (B) - (III), (C) - (IV), (D) - (I)
• (A) - (I), (B) - (II), (C) - (IV), (D) - (III)
• (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Hint:

Remember the two fundamental identities: $APC + APS = 1$ and $MPC + MPS = 1$. This allows you to quickly derive saving propensities from consumption propensities.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
In macroeconomics, private income is distributed between consumption and saving. Propensities describe how households allocate their total or incremental income to these two uses.

Step 3: Detailed Explanation:
Let us analyze each economic term:
Average Propensity to Consume (APC): This refers to the proportion of total income spent on consumption, defined as the ratio of total consumption ($C$) to total income ($Y$). Thus, $APC = C/Y$, which matches with (II).
Marginal Propensity to Consume (MPC): This measures the fraction of additional or incremental income that is spent on consumption, calculated as the ratio of change in consumption to change in income ($\Delta C / \Delta Y$). This matches with (III).
Marginal Propensity to Save (MPS): Since any additional income must be either consumed or saved, we have the identity: \[ MPC + MPS = 1 \implies MPS = 1 - MPC \] Substituting the definition of MPC, we get $MPS = 1 - (\Delta C / \Delta Y)$. This matches with (IV).
Average Propensity to Save (APS): Since total income is either consumed or saved, we have: \[ APC + APS = 1 \implies APS = 1 - APC \] Substituting the definition of APC, we get $APS = 1 - (C / Y)$. This matches with (I).
Therefore, the correct match is (A) - (II), (B) - (III), (C) - (IV), and (D) - (I).

Step 4: Final Answer:
The matching sequence is correctly represented by option (B).