1. What is Marginal Propensity to Consume?

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

2. How Does the Calculator Work?

The calculator uses the MPC formula:

Where:

• \( \Delta \text{Consumption} \) — Change in consumption spending ($)
• \( \Delta \text{Income} \) — Change in disposable income ($)

Explanation: MPC ranges between 0 and 1. A higher MPC means consumers spend more of each additional dollar earned.

3. Importance of MPC Calculation

Details: MPC is crucial for understanding the multiplier effect in economics, predicting consumer behavior, and formulating fiscal policy.

4. Using the Calculator

Tips: Enter the change in consumption and change in income in dollars. Both values must be positive, with income change greater than zero.

5. Frequently Asked Questions (FAQ)

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

Q2: How does MPC relate to MPS?
A: MPC + MPS (Marginal Propensity to Save) = 1. What isn't consumed is saved.

Q3: Does MPC vary by income level?
A: Yes, lower-income households generally have higher MPCs than wealthier households.

Q4: How is MPC used in fiscal policy?
A: Policymakers consider MPC when designing tax cuts or stimulus packages to maximize economic impact.

Q5: Can MPC be greater than 1?
A: Normally no, but temporarily possible if people spend savings or borrow money when income increases.