Question

Statement 1: The maximum value of Marginal Propensity to Consume (MPC) can be unity.

Statement 2: As the income of an economy increases, the proportionate increase in the level of consumption is always more than the increase in the level of income.

Options

• 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.

Answer 1

Statement 1 is true and Statement 2 is false.

Explanation:

• Statement 1 is true because the marginal propensity to consume (MPC) can have a maximum value of 1, meaning the entire additional income is spent on consumption.
• Statement 2 is false because, as income increases, the proportionate increase in consumption is generally less than the increase in income, reflecting the tendency to save more as income rises.