The Measurement of Marginal Propensity to Consume (MPC) Based on Indonesian,s Consumption Pattern for the Period 2000-2006

Abstract

Consumption expenditure is the biggest component of Gross Domestic Product, which indicate a
country walfare. The objective of this paper is to estimate the Indonesian,s marginal propensity to
consume and it,s rate of change for the period of 2000-2006. The empirical models used in this
paper were based on the one developed by Dumairy (1995) on the correlation between consumption
and permanent income , inflation, Wilcox ( 1989 ) on the correlation between consumption change
and interest rate and employment, and Faini (1991) on the correlation between consumption change
and saving , money supply , interest rate , real exchange and inflation. The models were estimated
after OLS assumptions. In the of period 2000-2006, MPC estimated is 0,686. It,s also revealed that
real exchange rate and inflation level give a negative impact to the change of consumption , although
partially the real exchange rate and inflation level give the significant influence.