How is the Marginal Propensity to Consume (MPC) calculated?

The Marginal Propensity to Consume (MPC) represents the proportion of additional income that is spent on consumption rather than being saved. It is a key concept in economics that helps to understand consumer behavior and the relationship between income levels and consumer spending.

To calculate the MPC, one takes the change in consumption resulting from a change in income. This is expressed as the ratio of the change in consumption to the change in income. In simpler terms, if a household's income increases by a certain amount, the MPC tells us how much of that increase will be spent on consumption. Therefore, the calculation is framed as:

MPC = Change in consumption ÷ Change in income.

This reflects the direct relationship between income changes and consumption behavior, illustrating how consumers react to changes in their economic situation.

Other options do not accurately define the calculation of MPC. For instance, the formula that suggests dividing the change in income by the change in consumption flips the relationship and misrepresents the concept. Similarly, calculating based on changes in disposable income or savings diverges from the fundamental definition of MPC, which specifically focuses on consumption's response to income changes. Thus, the key to understanding MPC lies in recognizing how additional income translates into additional consumption.