Answer to Question #136133 in Macroeconomics for Lily

Question

What is the meaning of the term "M.P.C.?" What information does this concept try to convey to us? Why do some economists contend that the M.P.C. measure is "more important" than the A.P.C. measure?

Answer 1

M.P.C in full means (marginal propensity to consume).

M.P.C is the portion of an accumulated rise in amount that a consumer spends on the consumption of goods and services, rather than saving it.

M.P.C is considered more important than A.P.C by economists because it flactuates at various income levels and is the lowest for higher-income consumers.

While for A.P.C which is the indicator of the of all income that is spent instead of being saved.

For A.P.C when income goes up, APC falls but at a less rate compared to M.P.C.