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EconomicsKeynesian Multiplier
By Sitraka Forler · Lecturer, Durham Business SchoolUpdated 13 September 2026 About this site
How an initial spending injection cascades into larger GDP change.
When the marginal propensity to consume (MPC) is 0.8, each $1 of government spending circulates into $5 of total demand. The multiplier shrinks with higher saving or import leakage. It underpins the case for fiscal stimulus in recessions.
Formula / theory
k = 1 / (1 − MPC) ΔGDP = k × ΔSpending
In Python
multiplier = 1 / (1 - mpc) delta_gdp = multiplier * fiscal_injection