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How to Calculate Marginal Propensity to Consume

Marginal propensity to consume (MPC) is defined as the share of additional income that a consumer spends on consumption. That means it describes the percentage of a pay raise consumers spend on buying goods and services instead of saving. We can calculate the marginal propensity to consume by following a simple three-step process. 1) Identifying the change in income. The change in income is commonly written as delta Y. It describes the change in the level of income between a certain point in the past and a more recent point in time. Therefore, to identify the change in income, all we have to do is subtract the old income from the new income. 2) Identifying the change in consumption Finding the change in consumption, which is also known as delta C, works just like identifying the change in income. Only this time we are looking for the difference in the level of consumption before and after a change in income. To do that, we simply subtract the consumption before the change, that is the old consumption, from the consumption after the change, that is the new consumption. 3) Dividing the change in income by the change in consumption We can calculate the marginal propensity to consume by dividing the change in consumption by the change in income. The result of this division can range from 0 to 1. If all additional income is used for consumption, ΔY is equal to ΔC, which results in a value of 1. Meanwhile, if none of the additional income is used for consumption, ΔC is 0, which results in a marginal propensity to consume of 0. Our website: https://www.quickonomics.com