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SAI INTERNATIONAL SCHOOL

ECONOMICS

Class-XII

CHAPTER 7

Aggregate demand and related concepts

(Module- 40)

TOPICS TO BE COVERED-

-Propensity to consume (APC and MPC)

-Break even level of national income

-Properties of APC and MPC

Derivation of savings curve from consumption curve

-concept of APS and MPS

Propensity to Consume: -

The proportion of total income or of an increase income that consumers tend

to spend on goods and services rather than to save is known as propensity to
consume.

Propensity to consume is broadly classified in to two heads: -

1. Average propensity to consume (APC)

It refers to the ratio of consumption expenditure to national income.

APC=

2. Marginal propensity to consume (MPC)
It refers to the ratio of change in consumption expenditure to change in
∆
national income. MPC
∆

EX-2. With the increase in national income from Rs. 5000crore to Rs.8000cror
the consumption expenditure of the economy increases from.3000crore
to Rs.5000crore. Calculate Average and Marginal propensity to consume.