Spending Multiplier Calculator
Enter the marginal propensity to consume to get the spending multiplier, the tax multiplier, and the balanced-budget multiplier — and see how a change in spending ripples out to GDP.
One tile of the full fiscal policy unit.
The course teaches fiscal policy interactively — drag the graphs, practice with feedback, and spaced reviews bring it back before you forget. Free.
Spending multiplier
5
1 / (1 − 0.8) = 1 / 0.2
Tax multiplier
-4
−0.8 / 0.2
Balanced-budget multiplier
1.00
always equals 1
A 100 billion rise in spending raises GDP by 500 billion.
A 100 billion tax cut raises GDP by only 400 billion — weaker, because part of the tax cut is saved.
MPS (the fraction saved) = 0.2. The bigger the MPS, the smaller the multiplier.
What the course adds
Beyond this one page
The fiscal-policy unit walks through expansionary and contractionary policy, automatic stabilizers, the multiplier chain, and crowding out — each on interactive graphs, with practice that finds your weak spots.
Spaced reviews
FSRS brings every concept back right before you'd forget. ~50% better retention than re-reading.
Per-concept mastery
Performance Factor Analysis tracks each sub-skill separately — you see which version of the idea is still wobbly.
Diagnostic placement
A short test skips you past what you already know. No re-learning the basics.
The formulas
Spending multiplier:
Tax multiplier:
Balanced-budget multiplier:
is the fraction of each extra dollar of income that households spend; is the fraction they save. A higher MPS means more leaks out at each round, so the multiplier is smaller.
Worked example
Suppose the MPC is 0.8 and the government raises spending by 100 billion dollars.
billion
A 100 billion tax cut raises GDP by only billion.
The same 100 billion does more as direct spending (500) than as a tax cut (400), because households save part of any tax cut before the chain begins.
FAQ
- What is the spending multiplier formula?
- The spending multiplier equals , where is the marginal propensity to consume. Because is the marginal propensity to save, the multiplier is also . With an MPC of 0.8, the multiplier is , so a one-dollar rise in spending eventually raises GDP by five dollars.
- What is the marginal propensity to consume?
- The marginal propensity to consume (MPC) is the fraction of each extra dollar of income that a household spends rather than saves. An MPC of 0.75 means people spend 75 cents and save 25 cents of every additional dollar. The MPC drives the whole multiplier process: the more of each dollar that gets re-spent, the longer the chain of new income and the larger the multiplier.
- Why is the tax multiplier smaller than the spending multiplier?
- The tax multiplier is , smaller in size than the spending multiplier. When the government spends a dollar directly, the full dollar enters the economy. When it cuts taxes by a dollar, households save part of it — only the spent fraction (MPC) starts the multiplier chain. So a dollar of spending moves GDP more than a dollar of tax cuts, and the tax multiplier carries a negative sign because higher taxes lower GDP.
- What is the balanced-budget multiplier?
- The balanced-budget multiplier is 1. If the government raises spending and taxes by the same amount, GDP rises by exactly that amount. The reason is that the spending multiplier and the tax multiplier nearly cancel, leaving a net effect of one: . Even a budget-neutral package can lift output.
- What weakens the multiplier in the real world?
- Leakages shrink the multiplier. Besides saving, households pay taxes and spend on imports, and both pull money out of the domestic spending stream. Crowding out — where government borrowing raises interest rates and discourages private investment — also offsets part of the boost. Real-world multipliers are therefore smaller than the simple formula suggests.
For instructors
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Ready to go deeper than a calculator?
The Econ Academy macroeconomics course traces the multiplier through the circular flow, contrasts spending with tax changes, and weighs crowding out — with interactive graphs and spaced-repetition review.