How to Calculate MPC
- 1). Calculate your estimated salary increase per year. For example, if you are making $40,000 this year and you expect to make $50,000 next year and $60,000 the year after that, your increase in salary is $10,000 per year.
- 2). Calculate the amount of your spending increase as a result of your salary increase. For example, if you are spending 25 percent more for every salary increase of $10,000, your spending increase would be $2500 each year.
- 3). Use the data to calculate the MPC by dividing the change in your consumption or spending by the change in income. Using our example data, if the change in consumption is $2500 and the change in income $10,000, our MPC would be 0.25. (10,000 / 2500 = 0.25). Your Propensity to Save would thus be O.75, a strong ratio of savings of your new earnings. Many Americans save only one to five percent.
