Marginal Propensity to Consume (MPC)

The marginal propensity to consume is a measure of how much of an increase in the income would be used for the purpose of consumption.

The marginal propensity to consume can be estimated for the total economy, but is in most cases used to analyze the household-sector.

The marginal propensity to consume can be calculated as the ratio of total consumption to GDP, or Disposable income, depending on the purpose. For the household sector it should be calculated as consumption to disposable income.

Deriving the marginal propensity to consume, c, using a linear regression model will give an estimate which is less subject to periodical fluctuations, thus, provides an average long run measure.