Question

(a) Describe what is meant by the marginal propensity to consume (mpc) and give its formula.

Answer 1

Marginal propensity to consume (mpc) is the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it.
It can be calculated using the following formula:
MPC = ∆C/∆Y where ∆C is the change in consumption, and ∆Y is the change in disposable income that produced the consumption.