The marginal propensity to consume will determine the size of the multiplier. This is because the initial injection leads to knock on effects and further rounds of spending. government spending or investment) can lead to a bigger final increase in real GDP. The multiplier effect states that an injection into the circular flow (e.g. Marginal propensity to consume and the multiplier These three withdrawals can limit the marginal propensity to consume.
If people receive a bonus, then they may be more inclined to save this temporary rise in income. However, at higher income levels, people tend to have a greater preference to save because they have most goods they need already. At low-income levels, an increase in income is likely to see a high marginal propensity to consume this is because people on low incomes have many goods/services they need to buy. The average propensity to consume = consumption / income Factors that determine the marginal propensity to consume (MPC) The marginal propensity to consume can also be shown by the slope of the consumption function: The marginal propensity to consume measures the change in consumption/change in disposable income The MPC will invariably be between 0 and 1.