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Marginal Propensity to Consume

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Marginal Propensity to Consume
In Keynesian economics, the amount of a person's increase in income spent on goods and services as opposed to saved. It is measured as a ratio of a change in consumption to a change in income. For example, if one receives a $5,000 raise in salary and spends $3,000, the MPC is 0.6. Factors affecting the MPC include interest rates and the relative expense of goods and services. See also: Marginal propensity to save.


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Thus poor people have a marginal propensity to consume of “1” (or 100%), because due to their minimal wealth, they are forced to spend their money as fast as they receive it – just to survive.
The long-run impact on the saving rate of these losses could be in the range of 21/2-9 percentage points in the United States and 31/4-111/4 percentage points in the United Kingdom, depending on the assumed marginal propensity to consume.
Part (ii) of Proposition 2 implies that under some additional conditions, an individual's marginal propensity to consume with respect to the marginal changes of the uncertainty of the offspring's future income is negative.
 
 
 
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