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Marginal Propensity to Consume

The marginal propensity to consume (MPC) is a measure of the proportion of an increase in income that a person or household is likely to spend on consumption (goods and services) rather than save. It is calculated as the change in consumption divided by the change in income. For example, if a person's consumption increases by £100 when their income increases by £200, their MPC would be 0.5.

The MPC is an important concept in economics because it helps to predict how changes in income will affect spending and aggregate demand in the economy. If the MPC is high, a given increase in income will lead to a larger increase in consumption, which can stimulate economic growth.

The MPC can vary depending on a variety of factors, including a person's age, their income level, and the availability of credit. It is generally thought that the MPC is higher for lower-income households, as they are more likely to spend a larger proportion of their income on necessities. The MPC can also be affected by changes in taxes and government policies.

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