AP MacroeconomicsAggregate Demand & Supply
Spending Multiplier
The spending multiplier measures how much real GDP changes for each dollar change in autonomous spending.
A higher marginal propensity to consume produces a larger multiplier because more of each dollar is re-spent. It is used to estimate the GDP impact of fiscal policy. It assumes spare capacity and ignores crowding out.
Formula / Example
Spending multiplier = 1 ÷ (1 − MPC) = 1 ÷ MPS; ΔGDP = multiplier × Δspending.
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