Enter the marginal propensity to consume or the marginal propensity to save into the calculator to determine the spending multiplier.

## Spending Multiplier Formula

The following two formulas are used to calculate the spending multiplier.

SM = 1/ (1-MPC)

SM = 1/MPS

- Where SM is the spending multiplier
- MPC is the marginal propensity to consume
- MPS is the marginal propensity to save

## Spending Multiplier Definition

A spending multiplier is defined as the inverse of a persons marginal propensity to save.

## Spending Multiplier Example

How to calculate a spending multiplier?

**First, determine the MPC.**Calculate the marginal propensity to consume. For this formula we will say this value is .50.

**Next, calculate the spending multiplier.**Using the formula the spending multiplier is found to be 1/ (1-.50) = 2.

## FAQ

**What is a spending multiplier?**

The spending multiplier is the multiple by which the GDP either increases or decreases in response to changes in spending.