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 ?
The inflationary effect was computed as a function of income, marginal propensity to consume (MPC), and estimates on the price effect of the increased oil excise on the price of food
Notowidigdo, Northwestern University and NBER; and Jialan Wang, University of Illinois at Urbana-Champaign, "The Marginal Propensity to Consume over the Business Cycle" (NBER Working Paper No.
2007, Eggertsson and Krugman, 2012), a phenomenon called a larger marginal propensity to consume.
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.
In consumer behavior, death thoughts increase the propensity to consume in highly materialistic societies (Arndt et al.
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.
Yet the macroeconomic effects were very different because most stock market wealth is held by the high end of the wealth-distribution spectrum, where there is a very low marginal propensity to consume.
In this section we show evidence that, as predicted by the theory presented in section I, these households have a large marginal propensity to consume out of transitory income shocks.
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.
Respondents were also asked what they feel their propensity to consume is, as part of the propensity to consume index (PCI).
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.