1. What is Marginal Propensity to Consume (MPC)?

The Marginal Propensity to Consume (MPC) measures the proportion of additional income that is spent on consumption. It's a key concept in Keynesian economics that helps understand consumer behavior and economic multipliers.

2. How Does the Calculator Work?

The calculator uses the MPC formula:

Where:

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

Explanation: MPC ranges between 0 and 1. A higher MPC means more of additional income is spent rather than saved.

3. Importance of MPC Calculation

Details: MPC is crucial for understanding the multiplier effect in an economy, predicting consumer spending patterns, and formulating fiscal policy.

4. Using the Calculator

Tips: Enter the change in consumption and change in income in USD. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

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

Q2: How does MPC relate to MPS?
A: Marginal Propensity to Save (MPS) = 1 - MPC, since additional income is either spent or saved.

Q3: Does MPC vary across income levels?
A: Yes, lower-income households generally have higher MPC than wealthier households.

Q4: How is MPC used in fiscal policy?
A: Higher MPC means fiscal stimulus (like tax cuts) will have greater impact on aggregate demand.

Q5: Can MPC be greater than 1?
A: Normally no, but in rare cases where people spend savings or borrow, it might appear temporarily >1.