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. The Marginal Propensity to Consume is a component of the Keynesian Macro-economic 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.

In brief

• The Marginal Propensity to Consume is the proportion of an increase in income that gets spent on consumption.
• MPC varies by income level. MPC is typically lower at higher incomes.
• MPC is the key determinant of the Keynesian multiplier, which describes the effect of increased investment or government spending as an economic stimulus.