User talk:Chimi doma

PROPENSITY TO CONSUME : it means the ratio between consumption and income.This term is widely used in the Keynesian theory.It refers to the schedule which the level of consumption at different level of income in an economy. .It has two aspects1:Average propensity to consume and 2:Marginal propensity to consume.

1:Average propensity to consume :is the ratio between total consumption (C)and total income (Y)at a given level of income employment in an economy.For e.g Income(y)=100 and Consumption (C)=80 then APC=C/Y =80/100=0.8 or 80%

This indicates that at the given level of employment in an economy,80%of the income is spent by way of consumption expenditure

following tables shows the estimation

TABLE FOR APC

In the above fig ,income is shown on X-axis ans Consumption expenditure on Y-axis CC IS THE CONSUMPTION CURVE.The curve shows that at point A, APC=80/100=0.8 and at point B, APC=120/200=0.6

2:MARGINAL PROPENSITY TO CONSUME:is the ratio between change in consumption (∆C)and change in income(∆Y).for e.g if income of the country is Rs 1,000 crore to Rs 1,2000 crore and the consumption expenditure increases from Rs 800 crore to Rs 900 crore it means that change in income by Rs 200 crore has caused  change in consumption expenditure by Rs 100 crore.The ratio of change in consumption to change in income i.e.    MPC will be  100/200=0.5 or 50%

It can explained with the help of the table TABLE FOR MPC

Generally,marginal propensity to consume is greater then zero and less than unity