How to Calculate Average Propensity

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Average propensity refers to one of two possible economic measurements: average propensity to consume or average propensity to save. Average propensity to consume is a measurement of how much money a person spends relative to how much money they make. Average propensity to save is a measurement of how much money people save relative to how much they make. Knowing the average propensities of consumers is valuable for market analysts because it helps predict how much money will be circulating through the economy.

  • Determine the total amount of income. This can be either gross income or net depending on what you prefer.

  • Substitute the total amount of income for the "I" in the formula APC = C / I. For, example if the total income is $30,000, you would plug this into the formula, making it APC = C / 30,000.

  • Determine the total amount of consumption. This is equivalent to all expenses and anything on which money was spent is an expense.

  • Substitute the total amount of consumption for the "C" in the formula APC = C / I. For example, if the total amount of consumption was 25,000, we would plug this into our formula. This in addition to step two would give us: APC = 25,000 / 30,000.

  • Solve for APC. Divide the total amount of consumption by the total amount of income. Using our example this would be 25,000 / 30,000 or 0.83. The quotient is the average propensity to consume expressed as a percent with 1.00 being equivalent to %100.

  • Determine the total amount of income. This can be either gross income or net depending on what you prefer.

  • Substitute the total amount of income for the "I" in the formula APS = S / I. For, example if the total income is $30,000, you would plug this into the formula, making it APS = S / 30,000.

  • Determine the total amount of savings. This is equivalent to any money that was left over after all expenses were paid.

  • Substitute the total amount of savings for the "S" in the formula APS = S / I. For example, if the total amount of savings was 5,000 we would plug this into our formula. This in addition to step two, would give us: APS = 5,000 / 30,000.

  • Solve for APS. Divide the total amount of savings by the total amount of income. Using our example this would be 5,000 / 30,000 or 0.16. The quotient is the average propensity to save expressed as a percent with 1.00 being equivalent to %100.

Tips & Warnings

  • Formula: APC = C / I Where APC=average propensity to consume, C=consumption, I=income
  • Formula: APS = S / I Where APS=average propensity to save, S=savings, I=income

References

  • Photo Credit http://blogs.nature.com/nm/spoonful/money%20jenn_jenn.jpg
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