Average Propensity to Consume (APC)

Definition

Average propensity to consume (APC) is the share of income that an individual, household, or economy spends on goods and services rather than saves. It is expressed as a decimal between 0 and 1 or as a percentage between 0% and 100%.

Formula

APC = Consumption / Income

Note: For realistic analysis, use disposable (after‑tax) income.

How APC and APS relate

• APC + APS = 1
  (Average propensity to save, APS = Savings / Income)
• If APC = 0, all income is saved. If APC = 1, all income is spent.

Example

Assume an economy has disposable income (GDP equivalent) of $500 billion and total savings of $300 billion.
– APS = $300B / $500B = 0.60 (60%)
– APC = 1 − 0.60 = 0.40 (40%) → $200 billion spent on goods and services

If the economy grows to $700 billion and consumption rises to $375 billion:
– New APC = $375B / $700B ≈ 0.5357 (53.57%)
– Marginal propensity to consume (MPC) measures the change:
– Change in consumption = $375B − $200B = $175B
– Change in income = $700B − $500B = $200B
– MPC = $175B / $200B = 0.875 (87.5%)
This means 87.5% of the additional income was spent.

Why APC matters

• A higher APC indicates greater consumer spending, which stimulates demand, production, and employment.
• A lower APC (higher saving rate) can signal weaker current demand but may support future investment and financial resilience.
• APC varies by income level: lower‑income households typically have higher APCs because a larger share of income goes to necessities; higher‑income households tend to save a greater share.

Special considerations

• APC is most informative when tracked over time or compared across groups or countries.
• Use disposable income for comparisons and policy analysis.
• Distinguish APC (average share spent) from MPC (share of additional income spent). MPC informs the short‑run impact of income changes (e.g., fiscal stimulus).

Key takeaways

• APC = Consumption / Income; values range from 0 to 1 (0%–100%).
• APC and APS are complementary: APC + APS = 1.
• High APC supports immediate economic activity; high APS indicates greater saving.
• MPC captures how incremental income is allocated between consumption and saving.

Frequently asked questions

• How is APC reported? As a decimal (e.g., 0.6) or a percentage (e.g., 60%).
• What data should I use? Prefer disposable (after‑tax) income and corresponding consumption or saving figures.
• How do economists use APC? To gauge current demand, forecast growth, and assess the potential impact of policy changes.

Sources

• U.S. Bureau of Economic Analysis (personal saving rate and national accounts)
• Corporate Finance Institute (concepts of APC and MPC)