Definition
- Marginal propensity to consume
- The marginal propensity to consume is the share of each extra pound of income that a person spends on consumption.
- Not to be confused with: Multiplier
- The multiplier is the ratio of the final change in real GDP to the initial change in spending that caused it.
Test yourself
What is the difference between marginal propensity to consume and multiplier?
Multiplier: The multiplier is the ratio of the final change in real GDP to the initial change in spending that caused it.