Spending Multiplier Calculator

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

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.


Example

How to calculate a spending multiplier?

  1. First, determine the MPC.

    Calculate the marginal propensity to consume. For this formula we will say this value is .50.

  2. Next, calculate the spending multiplier.

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


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spending multiplier formula

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