What does the average propensity to consume (APC) measure?

The average propensity to consume (APC) measures the proportion of total income that individuals or households spend on consumption goods and services. This concept reflects consumer behavior and helps economists understand consumption patterns relative to income levels. The APC is calculated by dividing total consumption by total income, providing insight into how much of their income people are willing to spend rather than save.

This metric is crucial for analyzing overall economic activity, as higher APC values indicate that consumers are spending a larger portion of their income, which can stimulate economic growth. In contrast, lower APC values suggest that individuals are saving more, potentially leading to decreased consumption and slower economic expansion.

Understanding the APC is important in economic planning and policy-making, as it helps predict consumer spending trends, influence fiscal policies, and assess the health of the economy.