what is marginal propensity to consume mpc 
in economics the marginal propensity to consume mpc is defined as the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services as opposed to saving it marginal propensity to consume is a component of keynesian macroeconomic theory and is calculated as the change in consumption divided by the change in income mpc is depicted by a consumption line which is a sloped line created by plotting the change in consumption on the vertical y axis and the change in income on the horizontal x axis 1investopedia madelyn goodnightunderstanding marginal propensity to consume mpc the marginal propensity to consume is equal to c y where c is the change in consumption and y is the change in income 2 if consumption increases by 80 cents for each additional dollar of income then mpc is equal to 0 8 1 0 8 suppose you receive a 500 bonus on top of your normal annual earnings you suddenly have 500 more in income than you did before if you decide to spend 400 of this marginal increase in income on a new suit and save the remaining 100 your marginal propensity to consume will be 0 8 400 divided by 500 the other side of the marginal propensity to consume is the marginal propensity to save which shows how much a change in income affects saving levels the calculation assumes that marginal propensity to consume marginal propensity to save 1 in the suit example your marginal propensity to save will be 0 2 100 divided by 500 if you decide to save the entire 500 your marginal propensity to consume will be 0 0 divided by 500 and your calculated marginal propensity to save will be 1 500 divided by 500 2mpc and economic policygiven data on household income and household spending economists can calculate households mpc by income level this calculation is important because mpc is not constant it varies by income level typically the higher the income the lower the mpc because as income increases more of a person s wants and needs become satisfied as a result they save more instead at low income levels mpc tends to be much higher as most or all of the person s income must be devoted to subsistence consumption according to keynesian theory an increase in investment or government spending increases consumers income and they will then spend more if we know what their marginal propensity to consume is then we can calculate how much an increase in production will affect spending this additional spending will generate additional production creating a continuous cycle via a process known as the keynesian multiplier the larger the proportion of the additional income that gets devoted to spending rather than saving the greater the effect the higher the mpc the higher the multiplier the more the increase in consumption from the increase in investment so if economists can estimate the mpc then they can use it to estimate the total impact of a prospective increase in incomes 34