What does the marginal propensity to consume refer to?

The marginal propensity to consume (MPC) signifies how much additional consumption will occur with a one-dollar increase in income. It is a crucial concept in Keynesian economics and helps to illustrate how changes in income affect overall consumption patterns. For instance, if the MPC is 0.8, this implies that for every additional dollar earned, consumption increases by 80 cents, indicating a strong relationship between income increments and consumption behavior.

This answer aligns with understanding the MPC as a measure of consumer behavior, highlighting the responsiveness of consumption to changes in income. Understanding this relationship is essential for analyzing economic trends, determining fiscal policy effects, and forecasting economic growth, as it reflects how households allocate their income between consumption and savings.