EconixaECONOMICS FUNDAMENTALS

Interactive calculator

Spending Multiplier Calculator

The spending multiplier k = 1/(1 - MPC) tells how much total output rises from an initial spending injection. With MPC = 0.8, k = 5, so a 100injectionraisesGDPby100 injection raises GDP by 500. Enter the marginal propensity to consume and an injection amount to get the multiplied total.

Spending Multiplier Calculator

k = 1 ÷ (1 − MPC), then ΔY = k × ΔG

Multiplier k = 5.000
Total GDP change ΔY = 500.00
Steps
  1. Marginal propensity to save: MPS = 1 − MPC = 1 − 0.80 = 0.20
  2. Multiplier: k = 1 ÷ MPS = 1 ÷ 0.20 = 5.000
  3. Total change: ΔY = k × ΔG = 5.000 × 100.00 = 500.00
  4. Round by round (each round respent at rate MPC): R1 = 100.00 → R2 = 80.00 → R3 = 64.00 → R4 = 51.20 → R5 = 40.96 → … converging to 500.00.
Why it works

The first round adds ΔG to GDP. A share MPC of that income is respent, adding MPC × ΔG, then MPC² × ΔG, and so on. This geometric series sums to ΔG × (1 + MPC + MPC² + …) = ΔG ÷ (1 − MPC).

How to use it

  1. Enter the marginal propensity to consume (0 to 1).

  2. Enter the initial spending injection.

  3. Read the multiplier and the total output effect.

What you will learn

  • Compute the spending multiplier.
  • Explain how the MPC determines the multiplier.
  • State the model's key assumptions.