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How to calculate Spending multiplier

The Spending multiplier formula, with plain worked examples you can check yourself.

Spending multiplier = 1 ÷ (1 − MPC)

The result is a number in ×.

Worked examples

MPC = 0.75Spending multiplier = 4×
MPC = 0.75Spending multiplier = 4×
MPC = 0.75Spending multiplier = 4×

How to use it

  1. Write down the values for each letter in the formula.
  2. Do the brackets first, then divide or multiply.
  3. Check the units before you compare results.
  4. Compare the answer with last period or with a competitor to see if it is good or bad.

This formula belongs to Money & Prices.

Related terms

InflationPrice elasticityDeflationMonetary policyMoney supplyCentral bank

Practice Spending multiplier with real numbers

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