Define marginal propensity to consume
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Gaurav Seth 5 years, 1 month ago
The ratio of change in consumption (C) to change in income (Y) is known as marginal propensity to consume. It indicates the proportion of additional income that is being spent on consumption.
MPC=ΔCΔY
The sum of MPC and MPS is equal to one. It can be proved as under: We know: ΔY = ΔC + ΔS
Dividing both sides by AY, we get,ΔY/ΔY=ΔC/ΔY + ΔS/ΔY or 1=MPC+MPS
[ΔY/ΔY=1; ΔC/ΔY =MPC ΔS/ΔY=MPS]
MPC + MPS = 1 because total increment in income is either used for consumption or for saving.
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