Page 3 - Home Assignment- AD and related concepts

Properties of APC :-
1. APC ˃ 1, when C ˃ Y and usually it takes place to the left hand
side of equilibrium point.
2. APC ˂ 1, when C ˂ Y and usually it takes place to the left hand
side of equilibrium point.
3. APC = 1, when C = Y, and usually it takes place at the break even
point.
4. APC will never be equal to 0 as consumption will never be equal
to zero.
5. APC decreases with increase in Income.

Properties of MPC:-

1. MPC always varies in between 0 and 1 including both the limits.
2. MPC = 0, when ∆C = 0.
3. MPC = 1, when ∆C = ∆Y
4. MPC of poor ˃ MPC of rich.
5. MPC of developing countries is always more than MPC of developed
countries.

Meaning of Savings. :-

Excess of income over consumption is known as saving.

Derivation of savings curve from consumption curve: -

Aggregate supply function is given as: -

= + =˃ = −

Therefore, the vertical distance between AS curve and consumption curve is

known as savings curve. C

Y
AS

AD

E S

0
X

O
−