Spending Multiplier Calculator

An MPC of 0.8 means each round spends 80% of the last, and the series sums to 5

An injection of 100 becomes income for whoever received it. If they spend 80% of it, 80 becomes someone else\u2019s income, who spends 64, and so on. The sum of that geometric series is 1/(1 − 0.8) = 5, so 100 of spending raises output by 500. The 20% not spent — the marginal propensity to save — is what eventually exhausts the series.

The multiplier is therefore entirely determined by what happens to money at each round. Raise the MPC to 0.9 and the multiplier doubles to 10; lower it to 0.5 and it falls to 2. Because the relationship is 1/(1 − MPC), it is extremely sensitive at the top of the range, which is also where estimating the MPC is hardest.

Tax, imports and saving all remove money from the circuit

The textbook multiplier assumes the only leakage is saving. Real economies leak in three places: income tax takes a share before it can be spent, imports send spending abroad, and saving removes the rest. The fuller expression divides by (1 − MPC(1 − t) + m), and each additional leak shrinks the multiplier substantially.

That is why empirical estimates are so much lower than the textbook figure. Studies of real fiscal stimulus typically find multipliers between 0.5 and 1.5, not 5. A small open economy with high import propensity leaks most of an injection abroad; a large closed economy retains far more. The number this page computes is the upper bound the simplest model allows, not a forecast.

Spare capacity and the interest-rate response decide it

Multipliers are largest when there is slack: unemployed workers and idle capacity mean extra demand raises output rather than prices. At full employment the same injection mostly raises prices, and the real multiplier approaches zero. This is the core reason stimulus timing matters more than stimulus size.

The monetary response matters just as much. If a central bank raises rates in response to fiscal expansion, higher borrowing costs crowd out private investment and offset part of the injection. At the zero lower bound, where rates cannot fall further and are unlikely to rise, estimated multipliers are substantially higher — which is why the same policy can be effective in one environment and ineffective in another.

One closed economy, no time, and a constant propensity to consume

The calculation is static: it gives the eventual total, with no indication of how long the rounds take. Real multiplier effects play out over quarters and years, and a stimulus arriving after a recession has ended does something quite different from one arriving during it.

It also treats the MPC as a single constant. In reality it varies sharply by income — lower-income households spend a much larger share of an extra pound than wealthy ones — which means the same total injection produces very different multipliers depending on who receives it. Targeting is often more consequential than the headline amount.

Sources & References

Figures on this page are checked against primary, authoritative sources. Links open in a new tab.

• Gross Domestic Product — BEA’s official GDP program, the measure of total output that a change in spending moves through the multiplier processU.S. Bureau of Economic Analysis · verified 2026-06-05
• The Building Blocks of Keynesian Analysis — OpenStax section on the marginal propensity to consume and the expenditure multiplierOpenStax, Principles of Economics 3e · verified 2026-06-06

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