Economics
Intermediate

Spending Multiplier

How much total output rises from an initial change in spending.

Formula

k=11−MPCk = \dfrac{1}{1 - MPC}

Variables

kMultiplier
MPCMarginal propensity to consume

Example

MPC 0.8: k = 1/(1−0.8) = 5

Did You Know?

With an MPC of 0.8, $1 of new government spending can generate up to $5 of total economic activity.

multiplierfiscalmacro