MPC (Marginal Propensity to Consume)
Plain definition
The fraction of each additional dollar of disposable income that a household spends on consumption rather than saving.
In economics
MPC is the engine of the Keynesian multiplier: a higher MPC means each round of new income generates more spending, so the multiplier 1/(1-MPC) is larger. MPC tends to be higher for low-income households (who spend most of extra income) and lower for the wealthy, which is why stimulus targeted at lower incomes packs more punch.
Example
A worker receives a 800 while saving $200. Her MPC is 0.8. If the government wants maximum stimulus per dollar, it targets households like hers, because 80 cents of each new dollar immediately re-enters the economy as someone else's income.
MPC is confused with the average propensity to consume. MPC measures the response to the NEXT dollar of income (the margin); the average propensity is total consumption divided by total income. A household can have a high average consumption rate but a low MPC if it saves most of any raise.