*noun*; in Keynesian economics, the rate at which aggregate consumption rises in response to a
rise in national income.
For example, suppose the marginal propensity to consume (MPC) is
0.95. If the national income is 100 billion dollars, and it rises 10%, then consumption will
rise by 9.
5 billion, and saving will
rise by 0.
5 billion.
If this theory is correct, then an expanding economy will suffer insufficient demand for its own output, and a recession will be inevitable.
This is why national governments respond to recessions with deficit spending: they are trying to counteract the MPC's effect on aggregate demand, and bring it in
line with potential output.
Not only is the marginal propensity to consume weaker in a wealthy community, but, owing to its accumulation of capital being
already larger, the opportunities for further investment are less
attractive...
J.M. Keynes, *The General Theory of Employment, Interest, and
Money* (1936), Ch.3