How to Calculate Multipliers :

The multiplier is an expectation of how much economic activity an investment will make. They are 3 steps involved to calculate the multipliers.

1. Calculate the Multiplier :

MPS + MPC = 1

Where,

1 represents all of the additional income. [ Example: MPS = 90% = 90/100 = 0.9 and MPC = 10% = 10/100 = 0.1. Therefore 0.9 + 0.1 = 1 (i.e MPC + MPS = 1) ]

MPS is the marginal propensity to save - the proportion of the additional income that gets saved.

MPC is the marginal propensity to consume - the proportion of the additional income that gets consumed.

spending multiplier = 1(1 - MPC)

( or )

Since MPC + MPS = 1, Spending multiplier = 1MPS

2. Calculate the Increase in Spending :

Actual Increase in GDP = Spending × spending multiplier

3. Add the Increase to the Initial GDP :

Total GDP = GDP + Actual Increase in GDP