Average Propensity To Consume

What is the 'Average Propensity To Consume'

The average propensity to consume refers to the percentage of income that is spent on goods and services rather than on savings. One can determine the percentage of income spent by dividing the average household consumption (what is spent) by the average household income (what is earned). The inverse of the average propensity to consume is the average propensity to save (APS).

BREAKING DOWN 'Average Propensity To Consume'

Economic periods where consumers are spending can boost the economy: more goods are purchased (high demand for goods and services); keeping more people employed and more businesses open. Periods where the tendency to save is increased can have a negative effect on the economy as people purchase fewer goods and services (low demand for goods and services), resulting in fewer jobs and increased business closures.

RELATED TERMS
  1. Average Propensity To Save

    The average propensity to save (APS) is an economic term that ...
  2. Marginal Propensity To Consume ...

    A component of Keynesian theory, MPC represents the proportion ...
  3. Marginal Propensity To Invest

    The ratio of change in investment to change in income. The marginal ...
  4. Marginal Propensity to Save

    The proportion of an aggregate raise in pay that a consumer spends ...
  5. Marginal Propensity To Import - ...

    The amount imports increase or decrease with each unit rise or ...
  6. Household Income

    The combined gross income of all the members of a household who ...
Related Articles
  1. Economics

    Explaining Marginal Propensity to Consume

    The marginal propensity to consume is a measure of how much consumption changes when income changes.
  2. Economics

    Calculating the Consumption Function

    The consumption function shows the level of consumer spending as it relates to disposable income.
  3. Term

    What's a Multiplier?

    A multiplier attempts to measure the effect of aggregate spending over time.
  4. Economics

    Macroeconomics: Supply, Demand and Elasticity

    By Stephen Simpson DemandDemand is driven by utility – the pleasure or satisfaction that a consumer obtains from consuming a good or service. Total utility is a function of the quantities ...
  5. Investing

    Can the U.S. Consumer Continue to Hold Up the World?

    Seven years into the recovery, a key driver of economic growth continues to demonstrate a frustrating conundrum: Consumer spending remains respectable.
  6. Savings

    What’s Behind The Sluggish Economic Recovery

    While the economy is improving, the rate of improvement is much lower than economists had expected. Estimates for Q2 GDP have collapsed to 2.5% from 3.2%.
  7. Professionals

    The Multiplier Effect

    CFA Level 1 - The Multiplier Effect
  8. Professionals

    Keynesian Theory

    Keynesian Theory
  9. Economics

    What Does Price Level Mean?

    Price level is the average of all current prices for goods and services in an economy.
  10. Economics

    What is the Income Effect?

    In economics, the income effect is the change in the consumption of goods caused by a change in income, whether income goes up or down.
RELATED FAQS
  1. Under what circumstances might a merchant turn toward using a banker's acceptance?

    Understand the significance of the marginal propensity to consume, and learn which factors can lead to a change in the marginal ... Read Answer >>
  2. How is marginal propensity to save calculated?

    Find out about marginal propensity to save, what the it indicates about a household and how to calculate a household's marginal ... Read Answer >>
  3. How does pork barrel spending hurt the economy?

    Learn what factors affect the marginal propensity to consume, how the MPC can be negative and why it plays a key role in ... Read Answer >>
  4. How does the marginal propensity to consume in the United States compare to other ...

    Learn how the marginal propensity to consume in the United States compares to that of other countries and why the United ... Read Answer >>
  5. Marginal propensity to Consume (MPC) Vs. Save (MPS)

    Learn the significant roles that the marginal propensity to consume and the marginal propensity to save play in Keynesian ... Read Answer >>
  6. How does the income of a person influence their marginal propensity to save?

    Discover how an individual's income can generally influence his marginal propensity to save and his marginal propensity to ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center