propensity to consume

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 addition, estimates from econometric studies suggest that in Japan the marginal propensity to consume out of wealth is relatively small.
This book makes an attempt to estimate some macro-economic structural parameters like marginal propensity to consume, marginal propensity to save, capital-output ratios etc.
'There is a high propensity to consume on the part of Bicolanos,' Beljica said.
As long as the slope of the consumption function, or the marginal propensity to consume, is positive and less than one the value of the multiplier is greater than one.
The mission to Kuwait and Qatar will provide South African companies with an opportunity to make inroads into the Gulf States that have a propensity to consume large quantities of high quality niche products as well as enable South Africa to diversify its export basket.
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.
Everyone is aware of the fact that the baby boomers are getting older, and that they have demonstrated a clear propensity to consume increasing amounts of medical goods and services.
Hence, the mental accounting framework predicts a higher propensity to consume from ordinary dividends than from large special dividends.
'Keynes offers no equilibrium theory of the level of consumption, and his claim that the marginal propensity to consume is less than unity is the simple corollary of the existence of a market value for output' (p.
I well remember my economics lectures at University concerning a theory called the "marginal propensity to consume".
The seasonally adjusted propensity to consume, the ratio of consumption spending to disposable income, fell to 68.9% in June from 70.6% in May.
Carroll examines an implication of models of habit formation in consumption that has been largely overlooked: habits strong enough to explain certain observed empirical puzzles imply an immediate marginal propensity to consume (MPC) out of permanent shocks of much less than one.