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Average Propensity to Consume

Average Propensity to Consume (APC) is an economic measure that represents the proportion of total income that households spend on goods and services. It is calculated by dividing total consumption by total income over a specific period. A higher APC indicates that consumers are spending a large portion of their income, which can drive economic growth but may also suggest lower savings rates. Conversely, a lower APC indicates that consumers are saving more.

Example

If a household earns $60,000 a year and spends $45,000 on consumption, the APC would be 0.75, or 75%. This means that 75% of the household’s income is spent on goods and services, with the remaining 25% presumably saved or invested.

Key points

• Measures the percentage of income spent on consumption.

• High APC suggests that households are spending most of their income, which can stimulate economic growth.

• Important for understanding the relationship between income levels and consumer spending.

Quick Answers to Curious Questions

A high APC suggests that consumers are spending a large portion of their income on goods and services, which can fuel economic growth but may reduce savings.

Higher APC can lead to increased demand for goods and services, boosting economic activity, while a lower APC might result in slower growth but higher savings and potential for future investment.

APC is calculated by dividing total consumption by total income over a given period, providing a ratio that reflects consumer spending habits.