Marginal Propensity To Invest

You’ve probably met the popular kids of Propensity: there’s the marginal propensity to consume (MPC) and the marginal propensity to save (MPS). But don’t forget about the marginal propensity to invest (MPI), an often underestimated one.

The marginal propensity to invest is a measure of the change in investment as the result of a change in disposable income. If a country gains $1 more dollar of income than before, which leads to a $0.20 increase in investments, the MPI is 0.2.

The marginal propensity to consume is kind of at odds with the marginal propensity to consume. If people are consuming more, they’re probably investing less, and vice versa...so a win for MPI is a loss for MPC, and a win for MPC is a loss for MPI. Something like our current political parties.