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).
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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 ร investment multiplier 5.00ร
Investment multiplier
5.00ร
MPC
0.80
Tax multiplier
-4.00ร
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 ร 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.
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