What does the marginal propensity to consume (MPC) refer to?

The marginal propensity to consume (MPC) is a key concept in economics that measures the proportion of any additional income that a household or individual will spend on consumption rather than save. This concept is vital for understanding how changes in income affect overall spending behavior in an economy. For example, if a household receives an extra dollar of income and chooses to spend 80 cents of it, the MPC would be 0.8 or 80%.

By quantifying how much additional income is spent, the MPC provides insights into consumer behavior and is essential for formulating economic policies, especially those related to fiscal stimulus or taxation. Economies with a high MPC are more likely to experience an immediate increase in demand when disposable income rises, fueling economic growth.

The other options do not accurately represent the definition of MPC. Total income available for spending refers to overall income rather than additional income. The average spending pattern of households implies a general trend rather than the incremental change captured by the MPC. The impact of income tax on spending behavior is a separate issue and does not focus specifically on the change in consumption relative to additional income.