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Just like the poor HtM households, wealthy HtM households have a large marginal propensity to consume out of small transitory income fluctuations.
This result confirms that consumption is proportional to income and net-wealth; that the average propensity to consume (APC) is decreasing in income (equation 12), but increasing in net-wealth, with the marginal propensity to consume (MPC) being constant (equation 13):
Frugality plays a decisive role for the optimal trigger of investment driven development leading to a virtuous cycle between the marginal propensity to consume and GDP growth in growing economies.
Also, under some reasonable conditions, it shows that an individual's marginal propensity to consume with respect to the marginal changes of the uncertainty of the offspring's future income is negative.
The implication of this dual reaction is that the measured marginal propensity to consume out of wealth is unlikely to be constant, as is often assumed.
Current estimates of the marginal propensity to consume out of stock wealth, that is, the "wealth effect" often described in the popular press, range from .
This implicitly assumes that the marginal propensity to consume (MPC) is equal for different forms of wealth, so that a dollar change in housing wealth is constrained to have the same effects as a dollar change in financial or other forms of wealth.
To test the hypothesis that the marginal propensity to consume out of transitory income is zero, fit the following model:
The estimated coefficient, h, on wealth, is described as the marginal propensity to consume out of wealth and is interpreted as the increase in consumer spending associated with an increase in wealth.
Thus, the consumption equation incorporates an estimated higher marginal propensity to consume out of social security benefits (as well as other transfer income) than out of after-tax labor income.
The marginal propensity to consume is the proportion of an infinitely small increase in income which would be spent on consumption.

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