// definition
Marginal propensity to consume
Consumption response to an income change
Short definition
The share of a change in disposable income reflected in a change in consumption over a specified horizon. Its measurement depends on the type of shock, how far it was anticipated, and the household’s liquid resources. Total consumption divided by total income instead measures the average propensity to consume.
risk atlas
Knowledge map
Intuition
Households can absorb an income change through spending, saving or their liquid buffers.
Formula
MPC = change in consumption / change in disposable incomeRelated analyses
Primary sources
- ECB, from mortgage rates to consumptionSection 4 and footnote 10: estimates by income group and transmission assumptions.
- OeNB, MPC heterogeneityWorking Paper 254, sections 2 and 3: methods and reported responses to a hypothetical temporary windfall.