What is the Definition of PMC and PMA in Economics and its Formula to Calculate it?

In case you wonder What is the definition of PMC and PMA in economics and your formula to calculate it? Keep reading, as we will answer these questions.

What is the definition of PMC and PMA in economics and your formula to calculate it?

PMA and PMC describe two common and “opposite” trends in the way a worker typically spends their money. These proposals were described by John Maynard Keynes at the beginning of the 20th century and have a psychological background.

Keynes believed that consumer behavior differed from existing theories (at the time) about the economy. Given this, psychology enters humanizing the changes between different salaries. Describing then a tendency for people to spend more money to have a better income. Variants of these observations are known as PMA and PMC.

PMA (Marginal Propensity to Save)

When the term PMA is used, we refer to Marginal Propensity to Save. PMA talks about the saving capacity that an individual obtains when receiving an increase in their income. It refers to the saving capacity when there is a positive change in income.

On the other hand, also in relation to saving, you may be interested in the importance of money in our environment, something with which we have contact all our lives.

PMC (Marginal Propensity to Consume)

On the other hand, the PMC, also known as Marginal Propensity to Consume, refers to the consumption capacity acquired after a salary increase. This refers to the possibility of spending more money when there is an increase in a person’s income. Denoting this common trend among workers at a general level

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In summary, we can classify PMA as the ability to save that is acquired with a salary increase. Whereas PMC is the spending capacity acquired after an increase in income.

In addition to what was shown before, it does not hurt to look for extra income methods. therefore, we recommend you to know about international banking and its advantages.

Calculation of the PMC

As we have indicated before, the PMC considers the expenses made by a person for the acquisition of products or for the payment of various services using the additional income. This calculation is performed analyzing expenses in relation to additional income and a simple mathematical operation is done to determine the value of the PMC.

To contextualize, it is better to establish an example with which we will extract the PMC. It is very simple, we will divide between the new additional income and the expense made. For example, if a person receives a $ 100 extra income and ends up spending $ 50, it is determined that the MPC is equal to 0.50. The only thing that is done is to divide the extra income by the expense, in this way the PMC is obtained.

If the salary is variable, the MPC should also vary. What a user must avoid at all costs is that his PMC increases when his salary increases. This trend shows that accounts are not being properly managed and a change must be made.

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On the other hand, as we pointed out before, a smart option is to learn to manage your resources, therefore learn the relationship between the interest rate and inflation.

PMA calculation

The PMA, as we pointed out, refers to the savings that a person can make by receiving an extra income. Certainly, the way to calculate the Marginal Propensity to Save It is the same as with the PMC. That is, by making a small division you can obtain the result very easily.

Again we will exemplify a specific case. On this occasion, imagine that a person receives an extra income of $ 100 and ends up saving $ 60 of that amount. In the previous case we can determine that the PMA is 0.60, a high PMA, something that is positive.

Having a high PMA in relation to extra income means that more money is being saved. At a general level, it is determined that a high EMP should be sought if the intention is to save money.

Also to save money it is worth considering some applications to save on the electricity bill. Certainly all these measures contribute to having a good EMP.

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