AVERAGE PROPENSITY TO CONSUME

The average propensity to consume (APC) refers to the percentage of income that is spent on goods and services rather than on savings. One can determine the percentage of income spent by dividing the average household consumption (what is spent) by the average household income (what is earned). The inverse of the average propensity to consume is the average propensity to save (APS).

Economic periods where consumers are spending can boost the economy: more goods are purchased (high demand for goods and services); keeping more people employed and more businesses open. Periods where the tendency to save is increased can have a negative effect on the economy as people purchase fewer goods and services (low demand for goods and services), resulting in fewer jobs and increased business closures.