What Is the Average Propensity to Consume?

Average propensity to consume (APC for short), also known as consumption propensity, refers to the ratio of consumption expenditure to income at any level of income.

Average propensity to consume

Average consumption tendency, also known as consumption tendency, refers to

The following APCs are average consumption propensities, and MPCs are marginal consumption propensities:

1. Keynes's consumption function

C = + Y ,

Where > 0 is constant, C is different from Y, MPC = dC / dY = , APC = C / Y = / Y + > MPC

2. Consumption function of Franco Modigliani 's life-cycle hypothesis

C = (W + RY) / T

Where W is the initial wealth, R is the number of years before the consumer retires (exactly the number of years that can still work and bring in income), Y is the annual salary, and T is the rest of the consumer's life (how long can he live) . This formula means that consumers pursue consumption smoothing , that is, the same consumption every year. MPC = dC / dY = R / T, APC = C / Y = W / (T * Y) + R / T> MPC

3. Consumption function of Milton Friedman 's permanent-income hypothesis

C = Yp here p should be superscript, Yp is lasting income

Y = Yp + Yt ... where t is also a superscript, Yt is the temporary income

The persistent income hypothesis implies that consumption depends on the persistent income Yp component of the total income Y. APC = C / Y = Yp / Y , APC depends on the ratio of persistent income to current income. The size of MPC and APC is not compared here.