Taxes and imports “leak” spending out of the domestic circular flow, so real-world multipliers are much smaller than the textbook 1 ÷ (1 − MPC), often estimated at 0.5–2 depending on the policy and the state of the economy.
How to use the Spending Multiplier Calculator
- Marginal propensity to consume (MPC)
- Tax rate
- Marginal propensity to import
- Change in spending
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the MPC, the tax rate, the marginal propensity to import and the change in spending.
Inputs explained
| Field | What to enter |
|---|---|
| Marginal propensity to consume (MPC) | A number |
| Tax rate | In % |
| Marginal propensity to import | A number |
| Change in spending | Amount in your currency |
What each result means
- Simple spending multiplier = 1÷(1 – [Marginal propensity to consume (MPC)])
- Multiplier with leakages = 1÷(1 – [Marginal propensity to consume (MPC)]×(1 – [Tax rate]÷100) + [Marginal propensity to import])
- Change in GDP = [Change in spending]×[Multiplier with leakages]
- Tax multiplier = 0 – [Marginal propensity to consume (MPC)]×[Multiplier with leakages]
Formula
Simple multiplier = 1 ÷ (1 − MPC)
With leakages = 1 ÷ (1 − MPC × (1 − t) + MPI)
Change in GDP = multiplier × change in spending
Worked example
Inputs: Marginal propensity to consume (MPC): 0.8; Tax rate: 0 %; Marginal propensity to import: 0; Change in spending: $100.
Results: Simple spending multiplier = 5; Multiplier with leakages = 5; Change in GDP = $500.00; Tax multiplier = -4.
Frequently asked questions
What is the spending multiplier?
How much GDP changes for each dollar of new spending.
How is it calculated?
1 ÷ (1 − MPC), reduced by taxes and imports.
What is the tax multiplier?
−MPC × spending multiplier; it's smaller than the spending multiplier.