Meaning & use
marginal propensity to consume
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Meaning
noununcountabletechnical
The share of each extra unit of income that people spend on goods and services instead of saving it.
Grammar: Usually used with the or as a technical term: the marginal propensity to consume is 0.8.
Patterns
- a high marginal propensity to consume
- the marginal propensity to consume of something
If households spend 80 cents of each extra dollar, their marginal propensity to consume is 0.8.
Poorer families tend to have a higher marginal propensity to consume.
A rise in the marginal propensity to consume increases the effect of government spending.
Common combinations
- high marginal propensity to consume
- Low-income groups often have a high marginal propensity to consume.
- estimate the marginal propensity to consume
- Economists estimate the marginal propensity to consume from survey data.
- marginal propensity to consume and save
- The marginal propensity to consume and save together equal one.
- calculate the marginal propensity to consume
- Students calculate the marginal propensity to consume from changes in income.
- the multiplier and the marginal propensity to consume
- The size of the multiplier depends on the marginal propensity to consume.
Synonyms and how they differ
- MPC
- MPC is the standard abbreviation and is used once the full term has been introduced.
- spending rate
- Spending rate is a vague everyday phrase, while the marginal propensity to consume refers to the extra income only.
Opposites
Word family
- marginal adjective
- relating to a small extra change
- propensity noun
- a natural tendency to behave in a certain way
- consume verb
- to use or buy goods and services
- consumption noun
- the using up of goods and services
- consumer noun
- a person who buys goods and services
Commonly confused: marginal propensity to consume or average propensity to consume?
marginal propensity to consume vs average propensity to consume
The average propensity is total consumption divided by total income, while the marginal propensity refers only to a change in income.
Practice
A worker's pay rises by $100 and she spends $75 of it. What is her marginal propensity to consume?
Choose one answer.
She spends 75 of the extra 100, so the marginal propensity to consume is 0.75. The 0.25 figure would be her marginal propensity to save.
Make it your own
Write a sentence using “marginal propensity to consume”, then check it and compare it with the examples above.