Marginal Propensity to Consume Calculator: MPC, MPS and the Spending Multiplier

How it works

MPC = ΔC ÷ ΔY · MPS = ΔS ÷ ΔY = 1 − MPC · Spending multiplier k = 1 ÷ (1 − MPC) = 1 ÷ MPS · With taxes and imports: k = 1 ÷ (1 − MPC × (1 − t) + MPM) · Tax multiplier = −MPC × k · ΔGDP = new spending × k

The marginal propensity to consume (MPC) is the share of an extra dollar of disposable income that people spend; the rest is saved, so the marginal propensity to save (MPS) is 1 − MPC. It comes from changes, not totals: if income rises by $2,000 and spending by $1,500, MPC = 0.75. The average propensity to consume (APC), shown in Before and after mode, divides total spending by total income instead. In Keynesian economics, MPC drives the spending multiplier. New spending becomes someone’s income, part of which is spent again, and so on, so the total rise in GDP is the first injection times 1 ÷ (1 − MPC). The table shows those rounds adding up. A tax cut has a smaller effect, because the first round is partly saved: the tax multiplier is −MPC times the spending multiplier. Under More options you can add a tax rate on extra income and a propensity to import, which shrink the multiplier as in an open economy. The model is a teaching tool: it assumes idle resources and steady prices and interest rates, and multipliers measured in real economies are usually smaller than the textbook formula gives.

Worked example

Disposable income rises by $2,000 and consumer spending by $1,500. MPC = 1,500 ÷ 2,000 = 0.750, so 75% of the extra income is spent, and MPS = 1 − 0.75 = 0.250. The spending multiplier is 1 ÷ 0.25 = 4.000, and the tax multiplier is −0.75 × 4 = −3.000. New spending of $1,000 raises GDP by $1,000 × 4 = $4,000 over all rounds ($1,000, then $750, then $562.50, …), while a $1,000 tax cut raises it by $3,000.

Sources: Omni Calculator: Spending multiplier (MPC 0.85 example) · Albert.io: Multipliers, AP Macroeconomics review (MPC, MPS, spending and tax multipliers) · Wikipedia: Marginal propensity to consume · Omni Calculator: Average propensity to consume (APC)

Frequently asked questions