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Multiplier Effect Calculator

Enter the MPC and the increase in investment to instantly find the investment multiplier, tax multiplier, and the resulting rise in GDP (national income).

Input

The share of extra income that gets spent. Enter a value from 0 to less than 1.

$

Result

Increase in GDP (national income)

$5,000,000.00

Investment increase $1,000,000.00 × investment multiplier 5.00×

Investment multiplier

5.00×

MPC

0.80

Tax multiplier

-4.00×

How it works

  • The investment multiplier is found with "1 / (1 - MPC)". The marginal propensity to consume (MPC) is the share of an increase in income that is spent.
  • The increase in GDP (national income) equals "investment multiplier × increase in investment". For example, with an MPC of 0.8 the investment multiplier is 5, so a $1,000,000 rise in investment raises GDP by $5,000,000.
  • The tax multiplier is found with "-MPC / (1 - MPC)". It measures how a tax cut ripples through income, and its absolute value is always smaller than the investment multiplier.
  • To use it, enter an MPC of 0 or more and less than 1, then enter the increase in investment. Each multiplier and the rise in GDP are shown automatically.
  • The closer the MPC is to 1, the larger the multiplier and the stronger the ripple effect. A higher saving rate produces a smaller multiplier.
  • This tool gives an estimate based on a simple Keynesian multiplier model that ignores tax increases, imports, and price changes. Use it as a rough guide for study and estimation.