Discussion
What happens to Average Propensity to Save, when disposable income increases?
Answer: A
The average propensity to save is saving divided by disposable income. Because the marginal propensity to save is positive and, at low income, saving is negative or very small, saving grows faster than income when income increases, so the ratio S/Y rises. So the APS increases as disposable income rises. The answer is increases, option A. The ratio S/Y is also called the average propensity to save, and it rises as income increases because saving grows faster.
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