Question #52907

(a) Describe what is meant by the marginal propensity to consume (mpc) and give its formula.

Expert's answer

Marginal propensity to consume (mpc) is the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it.

It can be calculated using the following formula:

MPC = ∆C/∆Y where ∆C is the change in consumption, and ∆Y is the change in disposable income that produced the consumption.

It can be calculated using the following formula:

MPC = ∆C/∆Y where ∆C is the change in consumption, and ∆Y is the change in disposable income that produced the consumption.

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