If wages rise by €10 per worker just this period, we would expect to see consumption rise by much less than €10 this period.

Question

Quizplus · Accepted Answer

This is because some of the wage increase will be saved or used for other purposes besides consumption. The amount of consumption increase will depend on the marginal propensity to consume, which is typically less than 1 (i.e. for every additional euro earned, less than one euro is typically spent on consumption).

If Wages Rise by €10 Per Worker Just This Period