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 MPC Calculator Work?

The calculator uses the MPC formula:

Where:

• \( \Delta C \) — Change in consumption (USD)
• \( \Delta Y \) — Change in disposable income (USD)
• MPC — Unitless ratio between 0 and 1

Explanation: MPC shows what percentage of each additional dollar earned will be spent rather than saved.

3. Importance of MPC in Economics

Details: MPC is crucial for calculating the multiplier effect in fiscal policy, predicting consumer behavior, and modeling economic growth. Higher MPC values indicate economies more responsive to changes in income.

4. Using the Calculator

Tips: Enter the change in consumption and change in income in USD. Both values must be positive, with ΔY > 0.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical MPC value?
A: MPC typically ranges between 0.6 and 0.9 in developed economies, meaning people spend 60-90% of additional income.

Q2: How does MPC relate to MPS?
A: MPC + MPS (Marginal Propensity to Save) = 1, as any additional income is either spent or saved.

Q3: Does MPC vary across income levels?
A: Yes, lower-income households generally have higher MPC as they spend more of their income on necessities.

Q4: How is MPC used in fiscal policy?
A: Higher MPC means fiscal stimulus (like tax cuts) will have a greater multiplier effect on the economy.

Q5: Can MPC be greater than 1?
A: Temporarily yes (if people spend savings or borrow), but normally MPC is between 0 and 1.