MPC Meaning and
Definition
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MPC, short for "Marginal Propensity to Consume," is an economic concept that measures the increase in consumer spending resulting from an increase in disposable income. It refers to the fraction or proportion of additional income that households choose to spend on goods and services, rather than saving or paying off debts.
MPC is a crucial component of Keynesian macroeconomic theory and is used to understand the relationship between income and consumption. It is calculated by dividing the change in consumption by the change in income. For example, if an individual's income increases by $100 and their consumption increases by $80, the MPC would be 0.8 ($80 divided by $100).
A higher MPC indicates that consumers are more likely to spend a larger portion of their income, while a lower MPC reflects a higher propensity to save. This concept is significant because it has implications for the multiplier effect, which measures the overall impact of changes in spending on the economy. A higher MPC leads to a larger multiplier, as each unit of spending generates additional rounds of income and consumption.
Understanding the MPC is essential for policymakers and economists as it helps predict the effects of changes in income, government spending, or taxes on consumer behavior and overall economic growth. By analyzing the MPC, economists can make more accurate forecasts and design effective fiscal and monetary policies to stabilize or stimulate the economy.
Common Misspellings for MPC
Similar spelling word for MPC
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