Welcome to Omni's APC calculator, a.k.a. the average propensity to consume calculator. A simple tool for when you want to calculate the average proportion of income you've spent on consumption. 💰
Tracking spending and saving habits is a great way to utilize your income, and evaluating your income and expenses could come in handy for your budget plan. If you ever wondered what ratio of your income you spend on consumption rather than save, the APC index is for you! In the following, you will learn about:
- What the average propensity to consume is;
- The difference between average and marginal propensity to consume;
- How to calculate average propensity to consume (the APC formula); and
- The use of APC in economics.
What is the average propensity to consume (APC)?
The average propensity to consume (APC) measures how much of your disposable income you spend on goods and services. In other words, the average propensity to consume represents the ratio of total consumption to disposable income. APC can be any number from zero to infinity, where the more disposable income you spend on consumption, the higher your APC value. Therefore, low-income households usually have higher APC than high-income households because low-income households pay a larger share of their disposable income on necessities such as food and housing.
Track your APC to observe your spending habits, and don't forget to check out our other related calculators:
- The marginal propensity to consume calculator;
- The marginal propensity to save calculator; and
- The money multiplier.
In the next section, we discuss the APC formula.
How to calculate average propensity to consume? Average propensity to consume formula
Our APC calculator uses the following formula of average propensity to consume:
APC = C/Y
APCis the average propensity to consume;
Cis the total consumption; and
Yis disposable income.
Advanced APC formula
We can further break down the APC formula as the following:
APC = C/Y = (Cₐ + cY)/Y = Cₐ/Y + c
Cₐ + cYis a consumption function, describing the relationship between
Cₐis autonomous spending (consumption when
Y = 0);
cis marginal propensity to consume; and
Yis disposable income.
An example of average propensity to consume calculation
Now that you know how to calculate APC, let's discuss an example! Imagine your annual disposable income (income that you receive after deduction of taxes) is $150,000, and your total consumption is $84,500. To calculate APC, all you need to do is divide $84,500 by $150,000, which equals
0.563; therefore, you consume around 56% of your income. Now use our APC calculator to calculate your own APC index.
What is the difference between average and marginal propensity to consume?
Although related, average propensity to consume and marginal propensity to consume measure different things. The average propensity to consume (APC) looks at the ratio of consumption expenditure to disposable income. On the other hand, marginal propensity to consume (MPC) determines how consumption patterns change when income increases.
Will disposable income decrease if the average propensity to consume increases?
Usually, if disposable income decreases, the average propensity to consume will increase. For example, if your salary decreases, you will have to spend a more significant portion of your disposable income on goods and services, which will increase your APC.
What is the use of APC in economics?
APC is used in macroeconomics to observe and analyze populations' consumption and saving habits. A decrease in APC may indicate less demand for goods and services, which is not beneficial for businesses and therefore for the economy.
How do I calculate MPC and APC?
To calculate MPC, you need to divide the change in consumption by the change in income. The APC formula is total consumption divided by total disposable income.