Spending Multiplier Calculator
Spending Multiplier Calculator helps calculating the Spending Multiplier.
What is Spending Multiplier?
In economics, Spending Multiplier (also known as fiscal multiplier or simply the multiplier) represents the multiple by which GDP increases or decreases in response to an increase and decrease in government expenditures and investment.
Spending Multiplier is the reciprocal of the marginal propensity to save (MPS). Higher the MPS, lower the multiplier, and lower the MPS, higher the multiplier.
The Formula of Spending Multiplier
The basic formula of the Spending Multiplier is as follows:
| Spending Multiplier = |
|
OR:
| 1 |
| 1-MPC |
Where:
MPS is the Marginal Propensity to Save
MPC is the Marginal Propensity to Consume
MPS = 1-MPC
Example of Spending Multiplier
Suppose you receive an additional 10,000 dollars in your salary, and as a result you decide to save an additional 3,000 dollars, your marginal propensity to save is 0.3 (3,000 dollars change in saving divided by 10,000 dollars change in income).
The Spending Multiplier is therefore equals to 3.33 (1/0.33), which means you increase your consumption by 7,000 dollars.
The 7,000 dollars increase in consumption will trigger second round of increase in incomes (for people associated with production of the consumed products and services). The second round of consumption amounting to 4,900 dollars (= 0.7 × 0.7 × 10,000), and so on.
Spending Multiplier Calculator
Suppose you receive an additional 10,000 dollars in your salary, and as a result you decide to:
to consume an additional 1,000 dollars, your mpc is 0.1, and your mps is 0.9. The Spending Multiplier equals to 1.11.
to consume an additional 2,000 dollars, your mpc is 0.2, and your mps is 0.8. The Spending Multiplier equals to 1.25.
to consume an additional 1,000 dollars, your mpc is 0.3, and your mps is 0.7. The Spending Multiplier equals to 1.43.
to consume an additional 1,000 dollars, your mpc is 0.4, and your mps is 0.6. The Spending Multiplier equals to 1.67.
to consume an additional 1,000 dollars, your mpc is 0.5, and your mps is 0.5. The Spending Multiplier equals to 2.00.
to consume an additional 1,000 dollars, your mpc is 0.6, and your mps is 0.4. The Spending Multiplier equals to 2.50.
to consume an additional 1,000 dollars, your mpc is 0.7, and your mps is 0.3. The Spending Multiplier equals to 3.33.
to consume an additional 1,000 dollars, your mpc is 0.8, and your mps is 0.2. The Spending Multiplier equals to 5.00
to consume an additional 1,000 dollars, your mpc is 0.9, and your mps is 0.1. The Spending Multiplier equals to 10.00.