CH. 10 THE MARGINAL PROPENSITY TO CONSUME 125

sumption industries is advancing pari passu withemployment in the capital-goods industries with themultiplier operating near its normal figure.

V

We have seen above that the greater the marginalpropensity to consume, the greater the multiplier, andhence the greater the disturbance to employment corre-sponding to a given change in investment. This mightseem to lead to the paradoxical conclusion that a poorcommunity in which saving is a very small proportion ofincome will be more subject to violent fluctuations than awealthy community where saving is a larger proportionof income and the multiplier consequently smaller.

This conclusion, however, would overlook the dis-tinction between the effects of the marginal propensityto consume and those of the average propensity to con-sume. For whilst a high marginal propensity toconsume involves a larger proportionate effect from agiven percentage change in investment, the absoluteeffect will, nevertheless, be small if the average pro-pensity to consume is also high. This may be illus-trated as follows by a numerical example.

Let us suppose that a community’s propensity toconsume is such that, so long as its real income doesnot exceed the output from employing 5,000,000. menon its existing capital equipment, it consumes the wholeof its income; that of the output of the next 100,000additional men employed it consumes 99 per cent.,of the next 100,000 after that 98 per cent., of the third100,000 97 per cent, and so on; and that 10,000,000men employed represents full employment. It followsfrom this that, when 5,000,000 + n x 100,000 men are

employed, the multiplier at the margin is 100/n, and

n(​n + 1)/2 . (50 + n) per cent, of the national income is invested.