The Multiplier

The Multiplier is the amount by which any injection of funds is multiplied by the time it has worked its way through the economy.

The higher the Marginal Propensity to Consume (MPC) the more money is spent in the economy. If we as a country spend 80% of any extra income we receive, then we have a national MPC of 80%, or 0.8.   If, however, we spend only 50% of our money then we have a national MPC of 50%, or 0.5.

• The greater the percentage of money we spend, the higher is our MPC.

• The higher our MPC, the more goods and services we are demanding.

• The more goods and services we demand, the more jobs we are maintaining and creating - therefore, the wealthier is the economy.

• The higher our MPC, the lower is our Marginal Propensity to Save, i.e., we are saving less as we spend more.

The Paradox

If we want a wealthy economy we must spend, spend, spend.  

However, if we want to be wealthy ourselves, we must save.

Click on the Calculations Page if you would like to learn how the Multiplier is calculated