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
How the mpc is connected to the multiplier