In macroeconomics, the average propensity to consume APC is calculated as which ratio?

Introduction / Context:
The average propensity to consume, often abbreviated APC, is a basic concept in macroeconomics that describes how much of income is spent on consumption on average. It appears in many exam questions because it helps explain consumer behaviour, saving patterns and the functioning of consumption functions in macroeconomic models. The question here tests whether the correct formula for APC is known and distinguished from related concepts such as the marginal propensity to consume.

Given Data / Assumptions:

• Total consumption expenditure in an economy or for a household is denoted by C.
• Average propensity to consume is defined in terms of these variables, not in terms of changes between periods.
• There are related measures like the marginal propensity to consume that involve changes in C and Y.

Concept / Approach:
Average propensity to consume indicates the proportion of income that is spent on consumption. It is calculated by dividing total consumption C by total income Y, so APC = C / Y. This is an average measure for a given level of income, not a measure of how consumption changes when income changes. The related measure, marginal propensity to consume, is defined as change in consumption divided by change in income. The correct option must therefore present APC as consumption divided by income, not the other way round or in terms of changes.

Step-by-Step Solution:
Step 1: Recall that APC is conceptually the fraction of each unit of income that is consumed on average. Step 2: Translate this idea into a formula by placing consumption in the numerator and income in the denominator, giving APC = C / Y. Step 3: Compare this with MPC, which is defined as change in consumption divided by change in income. Step 4: Review the options and identify which one matches APC = C / Y. Step 5: Select the option consumption / income as the correct formula for average propensity to consume.

Verification / Alternative check:
Suppose a household has an income of 100,000 units of currency in a year and spends 75,000 on consumption. The average propensity to consume is 75,000 divided by 100,000, equal to 0.75. This means that on average the household consumes 75 percent of its income and saves 25 percent. If next year income rises by 10,000 and consumption rises by 8,000, the marginal propensity to consume for that change is 8,000 divided by 10,000, equal to 0.8, which is a different measure. This example confirms that APC uses the ratio of consumption to income, while MPC uses the ratio of changes.

Why Other Options Are Wrong:
Option B is wrong because change in income divided by change in consumption is the inverse of the MPC formula and does not represent APC. Option C reverses the APC ratio by using income divided by consumption, which would measure how many units of consumption each unit of income could finance, not the fraction consumed. Option D gives the correct formula for MPC, not APC. Option E is the ratio of savings to income, which relates to the average propensity to save, not to consume.

Common Pitfalls:
A common pitfall is to confuse average and marginal concepts or to invert ratios under exam pressure. Students sometimes memorise the formulas mechanically without linking them to the underlying ideas of proportion of income spent and additional consumption out of additional income. Another mistake is to forget whether income or consumption is in the numerator. Remembering that APC answers the question "how much of income is consumed" and MPC answers "how much additional consumption occurs when income increases" helps keep the formulas straight and improves accuracy in exam problems.

Final Answer:
consumption / income