Marginal propensity to consume

The marginal propensity to consume (also: marginal propensity to consume, marginal propensity to consume ), briefly describes the proportion of income, consume the households in an economy at the next additional ( marginal ) income unit, ie not save. It is fundamental to the development of the Keynesian model and the total multiplier.

For example: If a household has a euro more available and the marginal propensity to consume is 0.65, then the budget will be spend by the additional € 65 cents and save 35 cents.

The consumption results from the autonomous consumption () and disposable income (Y ) multiplied by the marginal propensity to consume ():

The marginal propensity to consume is the derivative of consumption C according to income Y.

After the fundamental psychological law must be greater than 0 and less than 1. Thus:

The marginal propensity to consume is derived from the difference of 1 and the marginal propensity to save. This means that money that is not spent on consumption is saved.

Analogously, define the marginal investment rate for the investment.