Principles of Macroeconomics / Unit 9 MAC 0808 short lesson, about 20 seconds
Marginal, Not Average
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The idea
The propensity is the change in consumption divided by the change in disposable income, not consumption divided by income. The two differ, and at low incomes they differ sharply.
In practice
A household spending 1,250 out of 1,000 has a ratio above one, though its propensity stays 0.75.
Where people slip
Spending more than income is possible, from past saving, sold assets or borrowing.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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