If aggregate income is N500.00 and aggregate consumption is N400.00, this means that the average propensity to consume is?

Analyze the question We are given aggregate income (Y) = N500 and aggregate consumption (C) = N400. We need the average propensity to consume (APC).

Concept The average propensity to consume is the proportion of total income that is spent on consumption:

APC = C / Y

(Don't confuse this with the marginal propensity to consume, MPC = ΔC / ΔY, which deals with changes in income and consumption.)

Solution

APC = 400 / 500 = 0.80

Check: the average propensity to save (APS) = S / Y = 100 / 500 = 0.20, and APC + APS = 0.80 + 0.20 = 1. ✔

Why the other options are wrong

• A (0.20) is the APS (savings divided by income), not the APC.
• C (1.25) comes from flipping the fraction (Y / C = 500 / 400).
• D (2.00) has no basis in these figures.

Answer: B (0.80)

Exam tip APC = C ÷ Y. Remember "Consumption over Income," with consumption always on top. Also, APC + APS = 1, so if you find one you can quickly get the other. Use this to check your answer in the exam.