In the economy, the marginal propensity of consumption (MGC) (also marginal consumption ratio) is an empirical number that quantifies the induced consumption, the concept that an increase in personal consumer spending (consumption) occurs in an increase in disposable income (ie the remaining income after deduction of taxes and transfers).
For example, if a household earns an extra euro and the marginal inclination for consuming that household is equal to 0.65, then that household's household will spend 65 cents and save 35 cents. This connection also works the other way. A drop in income will result in a drop in consumption.
Mathematically, the marginal propensity to consume (MGC) function is expressed as the derivative of the consumption (C) function with respect to disposable income (Y). M G C = d C d Y {\displaystyle MGC={\frac {dC}{dY}}}
The marginal inclination for consumption is measured as the ratio of change in consumption to change in income. This ratio thus gives a number between 0 and 1 and is the opposite of the marginal propensity to save (MGS). The MGC can be more than one if the economic agent to finance his expenses lends a money amount that exceeds his income. Thus, in a two sectors closed economy, MGC = 1 - MGS applies. Both inclinations are crucial in the Keynesian economy. They are key variables in determining the value of the multiplier. Also see
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