Average propensity to consume
What is average propensity to consume?
This is the proportion of income that households spend on goods and services, rather than savings. It's calculated by dividing spending by income.
Where have you heard about average propensity to consume?
It's sometimes used as an indicator of economic health, because periods of high consumer spending can boost the economy. Higher demand for goods and services results in more sales, leading to more jobs and helping to keep businesses running.
What you need to know about average propensity to consume.
It's expressed as a percentage, showing the proportion of disposable income, or income after tax, which is spent on consumer goods. It usually varies with levels of income. Households with a higher income tend to have a lower average propensity to consume. This is because they need to spend less of their cash on basic goods and services. Any change in the average propensity to consume is measured by marginal propensity to consume.
Find out more about average propensity to consume.
Check out our guide to average propensity to save to learn more about these economic indicators.