What Is the MPC Formula in Economics?

In economics, MPC, or the marginal propensity to consume, is the increase in consumption caused by the increase in income divided by the change in income. MPC can be expressed as a ratio and is applicable to both individuals and businesses.

On an individual level, MPC has a negative relationship with cash levels, indicating that poorer individuals will spend more of their income quicker than wealthier individuals. In addition, British economist John Maynard Keynes introduced the multiplier theory, which states that increased spending causes an increase in national output. The multiplier theory also states that the higher the MPC is, the higher the multiplier effect is.