Read the following statements carefully :
Statement 1 : The value of Average Propensity to Save (APS) can be greater than one.
Statement 2 : Break-even point is the level at which level of consumption is equal to the income.
In the light of the given statements, choose the correct alternative from the following :
Read the following statements carefully :
Statement 1 : The value of Average Propensity to Save (APS) can be greater than one.
Statement 2 : Break-even point is the level at which level of consumption is equal to the income.
In the light of the given statements, choose the correct alternative from the following :
Show Hint
- Statement 1 is true and Statement 2 is false.
- Statement 1 is false and Statement 2 is true.
- Both Statements 1 and 2 are true.
- Both Statements 1 and 2 are false.
The Correct Option is B
Solution and Explanation
We must check two statements about APS and the break-even point, then pick the option that fits.
Step 2: Recall the formulae:
Average Propensity to Save: APS = S/Y, saving divided by income.
Average Propensity to Consume: APC = C/Y, and APS + APC = 1.
Step 3: Check Statement 1:
APS = 1 - APC. For APS to exceed one, APC would have to be negative.
Consumption is never negative, because people spend something even at zero income (autonomous consumption).
So APS can be negative when consumption is more than income, but it cannot be greater than one. Statement 1 is FALSE.
Step 4: Check Statement 2:
The break-even point is the income at which consumption equals income, so saving is zero.
Below this level people dissave, and above it they save. Statement 2 is TRUE.
Step 5: Pick the option:
Statement 1 false and Statement 2 true. This is option (B).
Option (A) wrongly makes Statement 1 true. Option (C) calls both true. Option (D) calls Statement 2 false.
Final Answer:
Statement 1 is false and Statement 2 is true. The correct option is (B).
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