Calculate your marginal propensity to consume. Enter your change in monthly income and change in consumption to calculate your MPC.
The following formula is used to calculate MPC.
MPC = CC / CI
- Where CC is a 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.
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.
How to calculate MPC
The following example is a step-by-step guide on how to calculate MPC.
- The first step in solving the MPC is to understand what variables need to be known from the formula above. In this case, the variables are changed 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 net 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 these 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 paying outstanding bills.
MPC is short for marginal propensity to consume and it is a measure of a person’s increase in spending with an increase in income.
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