AP MacroeconomicsAggregate Demand & Supply
Marginal Propensity to Consume (MPC)
The marginal propensity to consume is the fraction of each additional dollar of disposable income that households spend.
It ranges between 0 and 1 and determines the size of the spending multiplier. A higher MPC means more of any new income is re-spent, amplifying changes in aggregate demand. The MPC and the marginal propensity to save (MPS) always sum to 1.
Formula / Example
MPC = ΔConsumption ÷ ΔDisposable income. Spending multiplier = 1 ÷ (1 − MPC) = 1 ÷ MPS.
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