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If the marginal propensity of consumption begins to decline what will happen to the average propensity of consumption?


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September 12, 2011 9:34PM

If the marginal (per unit) consumption goes down, then the average consumption will also go down because the average is a function of each unit's individual value.

In other words, if the marginal perpensity to consume for the past 3 months was .2 each month, and for the next month it went down to .1, then your average would be:

Month 1 Avg = .2

Month 2 Avg = .2 (.2+.2/2)

Month 3 Avg = .2 (.2+.2+.2/3)

Month 4 Avg = .175 (.2+.2+.2+.1/4)