The marginal propensity to consume (MPC) is the change in consumption resulting from a change in disposable income. It measures the proportion of additional income that is spent on consumption.
To calculate the marginal propensity to consume, you can follow these steps:
1. Determine the change in consumption: Calculate the difference in consumption (C) between two different levels of disposable income.
2. Determine the change in disposable income: Calculate the difference in disposable income (Y) between the two levels.
3. Divide the change in consumption by the change in disposable income: Divide the change in consumption by the change in disposable income. Mathematically, it can be represented as:
MPC = ΔC / ΔY
For example, let's say an individual's consumption increases by $100 when their disposable income increases by $500. The calculation would be:
MPC = $100 / $500
MPC = 0.2
In this case, the marginal propensity to consume is 0.2, indicating that for every additional dollar earned, the individual spends 20 cents on consumption.
Please note that this calculation assumes a linear relationship between consumption and income, which may not always hold true in reality.
how do II caculate the marginal propensity to consume
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