1. What are MPC and MPS?

The Marginal Propensity to Consume (MPC) measures the proportion of additional income that is spent on consumption. The Marginal Propensity to Save (MPS) is the proportion saved. Together they always sum to 1.

2. How the Calculator Works

The calculator uses these formulas:

Where:

• \( \Delta C \) — Change in consumption
• \( \Delta Y \) — Change in disposable income

Explanation: MPC shows how consumption changes with income, while MPS shows how savings change. Both are key concepts in Keynesian economics.

3. Economic Significance

Details: These metrics are crucial for understanding consumer behavior, predicting economic growth, and formulating fiscal policy. The multiplier effect in economics depends on the MPC.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

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

Q2: Can MPC be greater than 1?
A: Normally no, but theoretically possible if people consume more than their additional income by borrowing or using savings.

Q3: How does MPC affect the multiplier?
A: Higher MPC leads to a larger spending multiplier effect in the economy (Multiplier = 1/(1-MPC)).

Q4: What factors influence MPC?
A: Income level, wealth, interest rates, consumer confidence, and tax policies all affect MPC.

Q5: How is this different from APC?
A: Average Propensity to Consume (APC) is total consumption divided by total income, while MPC looks at changes at the margin.