How to Calculate Marginal Propensity to Consume

by Steve Wozniak; Updated September 26, 2017

The Marginal Propensity to Consume (MPC) is a calculation used by economists to express the amount of additional income that consumers are actually spending and funneling back into the general economy. It is the inverse of the Marginal Propensity to Save.

Step 1

Determine the change in disposable income from one year to the next. For example, if disposable income among consumers for the previous year was $2.3 trillion, and in the current year is $2.7 trillion, then the change in disposable income is $0.4 trillion, or $400 billion.

Step 2

Determine the change in consumption from one year to the next. For example, if consumption in the household sector jumped from $1.8 trillion to $2.1 trillion, then the change for the year would be $0.3 trillion, or $300 billion.

Step 3

Divide the change in consumption by the change in disposable income. In the case of the figures mentioned earlier, we would have to divide $300 billion by $400 billion, giving us an MPC of 0.75.

Step 4

Check the figure against the Marginal Propensity to Save, if available. The sum of the MPC and MPS should always equal 1. For example, if the MPS is 0.25, then the MPC must be 0.75.

Warnings

  • Some economists will differentiate between an MPC on temporary income and an MPC on permanent income. If an increase in income is more permanent, consumers will be more influenced to spend. Temporary income increases usually influence more saving.\nThe MPC can be more than 1 if too much money is borrowed to finance expenditures.

About the Author

A native of Pittsburgh, Steve Wozniak has worked as a humor writer, a sports writer, an editor and even scribbled a few ads for big-time clients back in the day. These days, he spends his time contributing to a number of websites, covering the occasional sports event, and penning the next great American novel. He studied communications and theater at University of Notre Dame.