Apr 21 2012

Spending multiplier

Published by at 7:32 pm under

1/(1-MPC), or 1/MPS, where MPC is the marginal propensity to consume and MPS is the marginal propensity to save. It tells you how much total spending an initial injection of spending in the economy will generate. For example, if the MPC = .8 and the government spends $100 million, then the total increase in spending in the economy = $100 x 5 = $500 million.

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