Marginal Propensity to Consume (MPC)

Definition

MPC refers to the proportion of an additional dollar of income that is spent on consumption. It shows how much individuals or households increase their spending when they receive extra income.

Related terms

Marginal Propensity to Save (MPS): The proportion of an additional dollar of income that is saved instead of being spent.

Aggregate Consumption Function: A mathematical equation that shows the relationship between total consumption and total disposable income in an economy.

Disposable Income: The amount of money individuals or households have available for spending or saving after taxes are deducted from their incomes.