The value of APS in an economy at the break-even point is equal to:

Question

Accepted Answer

The correct option is 2:

The Average Propensity to Save (APS) is a key concept in macroeconomics, defined as the ratio of total savings (S) to total income (Y), represented by the formula APS = S/Y. The break-even point in an economy is the level of income where consumption (C) equals income (Y). Since all income is consumed, there is no saving occurring at this point. Mathematically, since income (Y) is either consumed (C) or saved (S), we have Y = C + S. At the break-even point, Y = C, which implies that S must be zero. Therefore, if S = 0, the APS = S/Y = 0/Y. As long as income (Y) is positive, the value of the APS must be exactly zero at the break-even point. This point signifies the transition where the economy switches from dissaving (negative saving) to positive saving.

The incorrect option is 1 (One): APS equals one only when savings (S) are equal to income (Y). This occurs when the entire income is saved and nothing is consumed, which is theoretically possible but far beyond the break-even point.

The incorrect option is 3 (Less than one): APS is less than one for all positive levels of income where some consumption occurs. Crucially, APS is less than one *before* and *after* the break-even point, but at the break-even point itself, it is precisely zero. Furthermore, APS is negative (less than zero) when dissaving occurs, i.e., when consumption is greater than income (C \> Y).

The incorrect option is 4 (Infinity): APS approaches infinity only if income (Y) approaches zero while savings (S) remains a positive non-zero value, which is not feasible in a standard consumption/income model. At the break-even point, APS is zero, not infinite.