# Consumption rate

The consumption rate describes the share of consumption expenditure in the disposable income of private households . A private household can spend its income on buying goods (consumption) or forego consumption ( saving ). Saving or renouncing consumption leads to capital formation at the same time.

## General

Statistically, one differentiates between the average and the marginal consumption rate as an economic indicator . The average consumption quota relates total consumer spending to total income : ${\ displaystyle c}$ ${\ displaystyle C}$ ${\ displaystyle Y}$ ${\ displaystyle c = {\ frac {C} {Y}}}$ .

The average consumption rate indicates how much of the national income is used for consumption. The marginal consumption rate indicates how much of an additional unit of national income is used for additional consumer goods purchases.

## Marginal consumption rate

The marginal consumption quota (also: marginal consumption inclination, border inclination to consumption), in short , describes the proportion of income that private households in an economy consume in the next additional (marginal) income unit , i.e. H. don't save . It is fundamental to the development of the Keynesian total model and the multiplier . ${\ displaystyle c_ {Y}}$ For example: If a household has an extra euro available and the marginal consumption rate is 0.65, then the household will spend 65 cents of the additional euro and save 35 cents.

The consumption results from the autonomous consumption ( ) and the disposable income (Y) multiplied by the marginal propensity to consume ( ): ${\ displaystyle C}$ ${\ displaystyle C_ {autonomous}}$ ${\ displaystyle c_ {Y}}$ ${\ displaystyle C = C_ {autonomous} + c_ {Y} \ cdot Y}$ The marginal propensity to consume is the derivative of consumption C after income Y.

${\ displaystyle C_ {Y} = {\ frac {dC} {dY}}}$ According to the fundamental psychological law, must be greater than 0 and less than 1. The following applies: ${\ displaystyle C_ {Y}}$ ${\ displaystyle 0 The marginal propensity to consume is the difference between 1 and the marginal propensity to save . This means that money that is not spent on consumption is saved. ${\ displaystyle S_ {Y}}$ ${\ displaystyle C_ {Y} = 1-S_ {Y} \!}$ The marginal investment quota can be defined analogously for the investments .