1. What is Marginal Propensity to Consume?

The Marginal Propensity to Consume (MPC) measures the proportion of additional income that is spent on consumption. It's a key concept in Keynesian economics that helps understand consumer spending behavior.

2. How Does the Calculator Work?

The calculator uses the MPC formula:

Where:

• \( \Delta C \) — Change in consumption (currency)
• \( \Delta Y \) — Change in disposable income (currency)

Explanation: The MPC is calculated by dividing the change in consumption by the change in income. It ranges between 0 and 1 in normal economic conditions.

3. Importance of MPC Calculation

Details: MPC is crucial for understanding the multiplier effect in economics, predicting consumer behavior, and formulating fiscal policy. A higher MPC means more of each additional dollar is spent, creating a larger multiplier effect.

4. Using the Calculator

Tips: Enter the change in consumption and change in income in the same currency units. Both values must be positive numbers, with ΔY greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical MPC value?
A: In developed economies, MPC typically ranges between 0.6 and 0.9. Lower-income households usually have higher MPC than wealthier ones.

Q2: How does MPC relate to savings?
A: Marginal Propensity to Save (MPS) is 1 - MPC. The two always sum to 1 in a simple model where income is either consumed or saved.

Q3: Can MPC be greater than 1?
A: Normally no, but in special circumstances like borrowing or drawing down savings, apparent MPC can temporarily exceed 1.

Q4: How does MPC affect fiscal policy?
A: Higher MPC means tax cuts or stimulus checks have greater economic impact as more of the money is spent rather than saved.

Q5: What's the difference between MPC and APC?
A: MPC measures change at the margin, while Average Propensity to Consume (APC) is total consumption divided by total income.