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

The marginal propensity to consume (MPC) measures the change in consumption divided by the change in income. This concept is crucial in understanding consumer behavior and economic dynamics. The MPC indicates how much additional income will be spent on consumption as opposed to saved.

For example, if a household receives an additional $1,000 in income and decides to spend $800 of it, the MPC would be 0.8 (or 80%). This measurement helps economists predict how changes in income levels can influence overall demand in the economy. A higher MPC suggests that consumers are more likely to spend extra income, which can lead to greater economic growth, while a lower MPC indicates more saving relative to consumption, affecting overall economic activity differently.

In contrast, the other options reflect different economic relationships or measures that do not define the MPC. For instance, the first option refers to the change in savings rather than consumption, making it irrelevant to the definition of the MPC. The third option regarding investment does not fit the consumption context of the MPC, and the last option mixes disposable income and total consumption, which does not accurately capture what the MPC assesses.