What is the marginal propensity to consume (MPC)?
Q: What is the marginal propensity to consume (MPC)?
A: The marginal propensity to consume (MPC) is a measurement that quantifies induced consumption, which is the idea that an increase in personal consumer spending happens with an increase in disposable income after taxes and transfers.
Q: How does MPC work?
A: MPC measures the proportion of more income that a person spends. For example, if a household earns one extra dollar of disposable income, and the marginal propensity to consume is 0.65, then the household will spend 65 cents and save 35 cents of that dollar.
Q: Who proposed MPC?
A: John Maynard Keynes proposed MPC.
Q: Is MPC less than one?
A: Yes, according to John Maynard Keynes, MPC is less than one.
Q: Does MPC vary between rich and poor people?
A: Yes, typically the MPC is higher for poorer people than in rich people.
Q: What happens when a household earns an extra dollar of disposable income?
A: If the marginal propensity to consume for this household is 0.65, then they will spend 65 cents and save 35 cents of that dollar.
Q: Can households spend more than their extra dollar without borrowing?
A No, households cannot spend more than their extra dollar without borrowing money from another source.
