How Do You Calculate Marginal Propensity To Consume?
The Marginal Propensity to Consume (MPC) is a calculation used by economists to express the amount of additional income that consumers are actually spending and funneling back into the general economy. It is the inverse of the Marginal Propensity to Save. Determine the change in disposable income from one year to the next. For example, if disposable income among consumers for the previous year was $2.3 trillion, and in the current year is $2.7 trillion, then the change in disposable income is $0.4 trillion, or $400 billion. Determine the change in consumption from one year to the next. For example, if consumption in the household sector jumped from $1.8 trillion to $2.1 trillion, then the change for the year would be $0.3 trillion, or $300 billion. Divide the change in consumption by the change in disposable income. In the case of the figures mentioned earlier, we would have to divide $300 billion by $400 billion, giving us an MPC of 0.75. Check the figure against the Marginal Propensi
