Marginal Propensity to Consume
Marginal propensity to consume (MPC) is the ratio of change in consumption to change in income. It shows how much of an additional pound of income households spend. MPC ranges from 0 (save all additional income) to 1 (spend all additional income).
Real World
During the 2020 COVID-19 lockdowns, the UK government's furlough scheme maintained household incomes, and with an estimated MPC of around 0.7, much of that income flowed straight back into supermarkets and online retailers like Amazon and Tesco.
Exam Focus
Always link MPC to the multiplier formula; examiners reward candidates who show the calculation 1/(1−MPC) with worked figures.
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