Marginal propensity to consume – definition

The marginal propensity to consume (mpc) is the extra consumer spending arising from an increase in national income, expressed as:

C
Y

If we take the following figures for GPD and consumption we can calculate the mpc:


  2018 2019
GDP $800bn $840bn
Consumption $500bn $525bn

This gives us:


  2018 2019
GDP   + $40bn
Consumption   + $25bn

Therefore, the mpc is:

$25bn/$40bn; = 0.625