Households spend part of any rise in disposable income and save the rest

Disposable income is income after taxes, and for most people it is the most powerful single influence on how much they consume. Each extra pound of it is either spent or saved, so the share spent, the MPC, and the share saved, the MPS, add up to one. A rise in disposable income therefore raises consumption, but by less than the rise itself.

Spending does not fall to zero with income, so the share spent falls as income rises

Even with no income people must consume something, by running down savings or borrowing, so consumption is a fixed amount plus the MPC times income: a line that starts above zero, with the MPC as its slope. Where it lies above the 45-degree line, households spend more than their income and dissave; where it lies below, the gap is saving. Because of the fixed amount, the share of income spent, the APC, falls as income rises.