Marginal Propensity to Consume Calculator

Understanding Marginal Propensity to Consume (MPC)

In Keynesian economics, the Marginal Propensity to Consume (MPC) measures the proportion of additional income that a household or nation spends on consumer goods and services rather than saving. MPC is a key parameter in macroeconomic policy and fiscal stimulus planning.

Mathematical Formula for MPC

MPC is calculated by dividing the change in consumer expenditure ($\Delta C$) by the change in disposable income ($\Delta Y$):

$$\text{MPC} = \frac{\Delta C}{\Delta Y} = \frac{C_2 - C_1}{Y_2 - Y_1}$$

Relationship with MPS and the Keynesian Multiplier

Because all additional income is either spent or saved, the sum of Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) equals 1:

$$\text{MPC} + \text{MPS} = 1 \implies \text{MPS} = 1 - \text{MPC}$$

The Keynesian Spending Multiplier illustrates how initial government or private investment ripples through the economy:

$$\text{Multiplier} = \frac{1}{1 - \text{MPC}} = \frac{1}{\text{MPS}}$$