EconixaECONOMICS FUNDAMENTALS

Interactive simulator

Spending Multiplier Simulator

When the government spends or exports rise, income rises, which raises consumption, which raises income again. The spending multiplier is k = 1/(1 - MPC). With MPC = 0.8, a 100increaseinspendingultimatelyraisesGDPby100 increase in spending ultimately raises GDP by 500. This simulator animates the rounds of spending and lets you change the MPC to see how leakages (saving, taxes, imports) shrink the multiplier.

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. Set the marginal propensity to consume.

  2. Set the initial spending injection.

  3. Watch the rounds accumulate toward the total multiplied effect.

  4. Lower the MPC and see the total shrink.

What you will learn

  • Compute the spending multiplier from the MPC.
  • Explain why leakages reduce the multiplier.
  • Trace the rounds of the multiplier process.

Model notes

A closed economy with fixed prices is assumed; crowding out, monetary-policy responses, and supply constraints are ignored. This is a Keynesian cross illustration, not a forecast.