A Shift in the Consumption Function

The consumption-income relationship changes when other factors than income change - for example a rise in interest rates or a fall in consumer confidence might lead to a fall in consumption spending at each level of income.

A rise in household wealth or a rise in consumer's expectations might lead to an increased level of consumer demand at each income level (an upward shift in the consumption curve).

The marginal propensity to consume (MPC) is an empirical metric that quantifies induced consumption, the concept that the increase in personal consumer spending (consumption) that occurs with an increase in disposable income (income after taxes and transfers).

where: ΔC is the change in consumption,

ΔY is the change in disposable income that produced the consumption.

The marginal propensity to consume is measured as the ratio of the change in consumption to the change in income, thus giving us a figure between 0 and 1. The MPC can be more than one if the subject borrowed money to finance expenditures higher than their income.

Average propensity to consume (APC) is the percentage of income spent. To find the percentage of income spent, one needs to divide consumption by income, or

Дата добавления: 2014-01-11