Calculate your marginal propensity to consume. Enter your change in monthly income and change in consumption to calculate your MPC.
MPC stands for marginal propensity to consume. This is a term that refers to the increase in consumption, or spending, when an increase in income occurs. It is a simple ratio of change in consumption to change in income by the following formula:
MPC = CC / CI
- Where CC is change in consumption ($)
- CI is chance in income ($)
Understanding MPC can help determine the necessary lifestyle changes that are unnecessary when receiving an increase in income.
How to calculate MPC
The following example is a step by step guide on how to calculate MPC.
- The first step in solving for the MPC is do understand what variables need to be known from the formula above. In this case, the variables are change in consumption (how much extra you spend) and change in income (how much extra income you receive).
- The next step is to calculate the change in income. This would be equal to the new income – the old income. For this example we will say the change in income was $10,000.00.
- Now, we must determine what the change in consumption is. This would be more difficult in a real world situation. To determine this you can dig into all of the extra purchases made since receiving the increase in income. For this examples we will assume $5,000.00.
- Finally, enter all of the information into the formula above. From this we find the MPC to be .50 or 50%. In general anything above 50% is bad and anything below 50% is considered normal.
MPC is also very dependent on current financial situations. If someone is struggling financially their MPC is likely to be higher due to their need for payingn outstanding bills.
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