<P> In a standard Keynesian model, the MPC is less than the average propensity to consume (APC) because in the short - run some (autonomous) consumption does not change with income . Falls (increases) in income do not lead to reductions (increases) in consumption because people reduce (add to) savings to stabilize consumption . Over the long - run, as wealth and income rise, consumption also rises; the marginal propensity to consume out of long - run income is closer to the average propensity to consume . </P> <P> The MPC is not strongly influenced by interest rates; consumption tends to be stable relative to income . In theory one might think that higher interest rates would induce more saving (the substitution effect) but higher interest rates also mean than people do not have to save as much for the future . </P> <P> Economists often distinguish between the marginal propensity to consume out of permanent income, and the marginal propensity to consume out of temporary income, because if consumers expect a change in income to be permanent, then they have a greater incentive to increase their consumption . This implies that the Keynesian multiplier should be larger in response to permanent changes in income than it is in response to temporary changes in income (though the earliest Keynesian analyses ignored these subtleties). However, the distinction between permanent and temporary changes in income is often subtle in practice, and it is often quite difficult to designate a particular change in income as being permanent or temporary . What is more, the marginal propensity to consume should also be affected by factors such as the prevailing interest rate and the general level of consumer surplus that can be derived from purchasing . </P> <P> MPC's importance depends on the multiplier theory . MPC determines the value of the multiplier . The higher the MPC, the higher the multiplier and vice versa . The relationship between the multiplier and the propensity to consume is as follows: </P>

The greater the mpc the greater the multiplier