How to Calculate Marginal Propensity to Consume (MPC) and Its Impact on GDP

How Do You Calculate Marginal Propensity to Consume (MPC)?

The percentage of a consumer's increase in overall salary that they choose to spend on goods and services rather than save is known as the marginal propensity to consume (MPC) in economics. The amount of consumption that results from a given level of income is determined by the marginal propensity to consume. One's marginal propensity to consume determines how much income is generated by their spending.

Calculation of Marginal Propensity to Consume (MPC)

To calculate the marginal propensity to consume (MPC), you need to divide the change in consumer spending by the change in disposable income. The formula is:

MPC = Change in Consumer Spending / Change in Disposable Income

For example, if a consumer's income increases by $100 and they spend an additional $80 on goods and services, the marginal propensity to consume (MPC) would be:

MPC = $80 / $100 = 0.8

This means that the consumer spends 80% of their additional income on goods and services, indicating a high propensity to consume.