propensity to consume


Also found in: Wikipedia.

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.

propensity to consume

the proportion of NATIONAL INCOME that is spent by households on CONSUMPTION of final goods and service. The average propensity to consume (APC) is given by:

The marginal propensity to consume (MPC) is the fraction of any change in income that is spent:

Alternatively, consumption can be expressed as a proportion of DISPOSABLE INCOME.

In the simple CIRCULAR FLOW OF NATIONAL INCOME MODEL, all disposable income is either consumed or saved. It follows that the sum of the MPC and the MARGINAL PROPENSITY TO SAVE always adds up to 1.

A rise in the propensity to consume increases consumption expenditure for a given income level, for example from OC to OC1 at income level Y in Fig. 162. This increases the consumption injection into the circular flow of national income and results in an increase in aggregate demand and national income. See MULTIPLIER, CONSUMPTION EXPENDITURE.

References in periodicals archive ?
In the SIM-1 model, the marginal propensity to consume for HtM households is almost identical to that for poor HtM households in the SIM-2 model, and the marginal propensity to consume for non-HtM households is, in general, even smaller than that for non-HtM households in the SIM-2 model.
Highly-paid public sector jobs and easy availability of personal loans mean Gulf nationals' marginal propensity to consume (MPC) is exceptionally high.
The conventional wisdom is that such extensions have positive effects on the macroeconomy because they have very little effect on labor supply and also increase aggregate demand because unemployed workers have a large marginal propensity to consume any benefits they receive.
Talk about deficit reductions, quantitative easing and the marginal propensity to consume mock ordinary people who see their lives diminished as libraries close, the arts are slashed and culture crucified on the cross of capitalist consumerism.
Furthermore, since money is used to acquire goods and services that in turn impacts consumption, it is posited that the income velocity of money is positively related to the marginal propensity to consume, given that money and consumption are arguments in the utility function of the representative agent.
There is room, therefore, for both policies to operate together - to promote investment and, at the same time, to promote consumption, not merely to the level which with the existing propensity to consume would correspond to the increased investment, but to a higher level still.
5 point rise in the country's Propensity to Consume Index (PCI) - the proportion of annual income spent on consumption of goods and services [logical not]- recorded in a survey conducted last month by online employment agency Bayt.
Especially the poor households were the most vulnerable to increasing expenditures on food since they were already facing a high marginal propensity to consume out of their incomes.
As part of the survey, respondents were also asked what they feel their propensity to consume is, as part of the Propensity to Consume Index (PCI).
It is clear that a strong feeling of anxiety prevails, and is sharply constraining the propensity to consume.
The study also revealed that the Propensity to Consume Index (PCI) in the Middle East varied from one country to another, according to AL HAYAT.
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.