Question

Read the following statements carefully :

Statement I : At the break-even level of income, the value of slope of the consumption curve is zero.

Statement II : Marginal Propensity to Consume (MPC) refers to the change in consumption per unit change in income.

In the light of the given statements, choose the correct option from the following :

• A. Statement I is true and Statement II is false.
• B. Statement I is false and Statement II is true.
• C. Both Statements I and II are true.
• D. Both Statements I and II are false.

Hint:

The slope of the consumption curve is the MPC and not zero. Statement II is the definition of MPC.

Answer 1

The Correct Option is B

Step 1: Understand the two statements:
We must judge each statement as true or false and then pick the matching option.
The break-even level of income is the income at which consumption equals income, so saving is zero.

Step 2: Check Statement I:
The slope of the consumption curve is the MPC = change in C / change in Y.
At the break-even point C = Y, so APC = 1. The slope there is still the MPC, a positive number less than 1, for example 0.8.
The slope is not zero, since consumption rises as income rises. So Statement I is FALSE.

Step 3: Check Statement II:
MPC is the ratio of the change in consumption to the change in income, MPC = delta C / delta Y.
This is the standard definition, so Statement II is TRUE.

Step 4: Test the options:
(A) says I is true and II is false. It is the reverse of what we found, so it is wrong.
(C) says both are true. Statement I is false, so it is wrong.
(D) says both are false. Statement II is true, so it is wrong.
(B) says I is false and II is true. This is what we found, so it is correct.

Final Answer:
Statement I is false and Statement II is true. The answer is option (B).