The marginal propensity to consume is defined as question 64...

The marginal propensity to consume is defined as: Question 64 options: the ratio of change in consumption on both domestic and foreign items to the change in income average consumption as a proportion of income the ratio of the change in consumption on domestic items to the change in income the change in consumption on domestic items multiplied by the change in income the change in consumption on domestic and foreign items multiplied by the change in income

Transcript

00:01 So here we're asked about the mpc, the marginal propensity to consume.

00:07 If you're just here for the answer, the whole idea is that it's the change in consumption with respect to a change in income.

00:16 But let me try to walk you through this to consume.

00:22 So we're looking at consumption, that's obvious, but margin means, right, a little, we're looking at a little more or less.

00:39 And propensity is how much will happen.

00:48 So the idea is that if something about your situation changes a little bit, that is we're on the margin.

00:55 How will you react propensity in terms of consumption, right? if i just try to break that down linguistically, this means that if your economic situation changes a little bit marginal, how much will you react, propensity to in terms of your consumption, right? this is defined as the change in consumption, right? it's got to be change in consumption.

01:19 But when we say propensity, we don't mean the dollar value, not the dollar value.

01:26 We mean relative value, relative to the change.

01:32 So the biggest change in macroeconomics is income, right? so when we say propensity, we're not thinking about how many dollars is consumption going up by.

01:41 We're talking about how many dollars is consumption going up by relative to whatever changed.

01:47 So the marginal propensity to consume is the ratio of change in consumption to the change in income...

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