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Marginal Propensity To Consume - MPC

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Definition of 'Marginal Propensity To Consume - MPC'

A component of Keynesian theory, MPC represents the proportion of an aggregate raise in pay that is spent on the consumption of goods and services, as opposed to being saved.
Investopedia Says

Investopedia explains 'Marginal Propensity To Consume - MPC'

Let's illustrate this with an example. Suppose you receive a bonus with your paycheck, and it's $500 on top of your normal annual earnings. You suddenly have $500 more in income than you did before. If you decide to spend $400 of this marginal increase in income on a new business suit, your marginal propensity to consume will be 0.8 ($400 divided by $500).

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