Spending Multiplier Calculator
Calculate fiscal multiplier effects using marginal propensity to consume and save
Calculate Spending Multiplier
Portion of additional income spent on consumption (0-1)
Automatically calculated as 1 - MPC
Spending Multiplier Results
Formula used: Spending Multiplier = 1 / (1 - MPC) = 1 / MPS
Economic interpretation: Each $1 of additional spending generates $0.00 in total economic activity
Constraint: MPC + MPS = 1 (100% of income is either consumed or saved)
Multiplier Impact on Economy
Additional government or business spending
Current gross domestic product
Multiplier Effect Analysis
Example Calculation
Business Investment Example
Marginal Propensity to Consume: 0.85 (85%)
Marginal Propensity to Save: 0.15 (15%)
Initial Investment: $7,500
Current GDP: $25,000,000
Results
Spending Multiplier = 1 / (1 - 0.85) = 6.67
Total GDP Increase = $7,500 × 6.67 = $50,000
New GDP = $25,050,000
Economic Growth = 0.20%
Types of Multipliers
Fiscal Multiplier
Government spending impact
Typically 0.5 - 2.5
Investment Multiplier
Private investment effects
Based on MPC/MPS ratios
Money Multiplier
Banking system effects
Related to reserve ratios
Factors Affecting Multiplier
Higher MPC = Higher multiplier effect
Lower savings rate = More economic circulation
Import propensity reduces domestic multiplier
Time lags affect real-world implementation
Understanding the Spending Multiplier
What is the Spending Multiplier?
The spending multiplier measures how much total economic activity (GDP) increases for each dollar of additional spending. It shows the cascading effect of initial spending as it flows through the economy.
How Does it Work?
- •Initial spending creates income for recipients
- •Recipients spend a portion (MPC) and save the rest (MPS)
- •Spent money becomes income for others
- •Cycle continues until all money is saved
Spending Multiplier Formula
Multiplier = 1 / (1 - MPC)
Multiplier = 1 / MPS
- MPC: Marginal Propensity to Consume (0 to 1)
- MPS: Marginal Propensity to Save (0 to 1)
- Constraint: MPC + MPS = 1
- GDP Impact: Initial Spending × Multiplier
Important: Real-world multipliers are affected by imports, taxes, and time lags, often reducing the theoretical impact.
For Policymakers
Understanding multipliers helps design effective fiscal stimulus policies. Higher multipliers indicate more efficient government spending programs.
For Businesses
Investment decisions benefit from multiplier analysis. Higher consumption economies provide better returns on business expansion investments.
For Economists
Multipliers help model economic impacts and predict GDP changes from fiscal policy interventions or major investment programs.