CBSE 2025, Set 2

Question

Read the following statements carefully:

Statement 1: Marginal Propensity to Consume (MPC) exhibits the consumption per unit of income.
Statement 2: As the national income of a country rises, the proportionate increase in the consumption is always more than the increase in the income.

In the light of the given statements, choose the correct option from the following: A). Statement 1 is true and Statement 2 is false. B). Statement 1 is false and Statement 2 is true. C). Both Statements 1 and 2 are true. D). Both Statements 1 and 2 are false.

Edvaya · Accepted Answer

The correct answer is Both Statements 1 and 2 are false.. (D) Both Statements 1 and 2 are false. **Explanation:** Statement 1 is false because MPC is the ratio of *change* in consumption to *change* in income ($\Delta C / \Delta Y$). Consumption per unit of income is the Average Propensity to Consume (APC). Statement 2 is false because according to Keynes' psychological law, as income rises, consumption increases but by a proportionately *smaller* amount ($MPC < 1$).

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Economics > Introductory Macroeconomics > Determination Of Income Employment

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