Marginal Propensity

Marginal Propensity represents the amount of something we will do as a result in the change of income / Real GDP. It changes as a result of attitudes to spending and saving. It may change over time and is an average over all households.

Consume §

The Marginal proportion of every additional doller we get that we will spend.

Save §

The marginal proportion of every additonal dollar we get that we will save.

e.g. For every extra 0.60c, and save $0.40c therefore, Marginal Propensity = 0.6 = 60% therefore, Marginal Propensity to Save = 0.4 = 40%

Types of Marginal Propensity §

Marginal Propensity to Import §

The proportion of every dollar a citizen will spend on foreign imports into the country.

Marginal Propensity to tax §

The proportion of every dollar a citizen earns that is taxed

Marginal Propensity to Save §

How much of every dollar we earn that is saved

Marginal Propensity to Consume §

The proportion of every dollar that is spent on consumption