Spending Multiplier Calculator

Calculate the economic impact of spending changes in an economy using the spending multiplier effect

Input Parameters

Percentage of additional income that is spent on consumption

Initial change in spending (e.g., government spending, investment)

Calculation Results

Calculation Formula

Spending Multiplier = 1 / (1 - MPC)

Where:
MPC = Marginal Propensity to Consume
The multiplier shows how much total economic activity changes from an initial spending change

Spending Multiplier Calculator Usage Guide

Learn how to use the Spending Multiplier Calculator and understand the economic concept

What is the Spending Multiplier?

The spending multiplier is an economic concept that measures the effect of an initial change in spending on the overall economic output. It shows how much total economic activity changes from an initial spending change.

How to Use This Calculator

  1. Enter the Marginal Propensity to Consume (MPC) - this is the percentage of additional income that households spend on consumption (typically between 0 and 1). For example, if MPC is 0.8, households spend 80% of any additional income.
  2. Enter the Initial Spending Change - this is the initial change in spending (e.g., government spending, investment) in dollars.
  3. Click the Calculate button to see the results.

Understanding the Results

The calculator provides two key results:

  • Spending Multiplier: This shows how many times the initial spending change will impact the overall economy. For example, a multiplier of 5 means that an initial $1 billion spending increase could potentially increase total economic activity by $5 billion.
  • Total Change in Economic Activity: This shows the actual dollar amount of the total economic impact based on your inputs.

Economic Principle

The spending multiplier effect works through a chain reaction in the economy:

  1. An initial injection of spending increases income for those receiving it.
  2. Some portion of this additional income is spent (determined by MPC), which becomes income for others.
  3. This process continues, with each round of spending becoming someone's income.
  4. The total increase in economic activity is greater than the initial spending change.

Example

Suppose the government increases spending by $100 million (initial spending change), and the MPC is 0.75:

1. The spending multiplier = 1 / (1 - 0.75) = 4

2. The total change in economic activity = 4 × $100 million = $400 million

This means the $100 million government spending could potentially increase the overall economy by $400 million.