What Is Marginal Propensity To Consume (MPC)?

Business & Management
#1

The marginal propensity to consume (MPC) is defined in economics as the proportion of an aggregate increase in income that a consumer spends on goods and services rather than conserving it. The marginal propensity to spend is computed as the change in consumption divided by the change in income in Keynesian macroeconomic theory. A consumption line, which is a sloping line produced by graphing the change in consumption on the vertical “y” axis and the change in income on the horizontal “x” axis, is used to represent MPC.

#2

With a consumer’s disposable income, meaning how much they have to spend, the consumer can either spend it all, save it all, or spend some and save the rest. MPC tells you the portion of disposable income that is spent, meaning consumers are shopping and buying.

For example, if MPC = 0,.6, that means 60% of the disposable income is being spent. The remaining 30%, which mathematically would be 0.3, is your MPS. So MPC and MPS are expressed as decimals but they represent percentages.