How do you calculate the multiplier from mps, mpt and mpm

• →The multiplier is defined as the ratio of the final change in national income to the initial change in injections that caused it.
• →It is calculated using the formula 1 ÷ (mps + mpt + mpm), where each term represents a leakage from the circular flow of income. For example, if mps = 0.1, mpt = 0.2 and mpm = 0.2, the multiplier equals 1 ÷ 0.5 = 2. This means that an initial injection of £100 million would lead to a final increase in national income of £200 million.
• →The size of the multiplier depends directly on the combined magnitude of the economy's leakages.

• →The multiplier formula: The two equivalent forms — 1 ÷ (mps + mpt + mpm) and 1 ÷ (1 − mpc) — must both be understood. They produce the same result because mpc + mps + mpt + mpm = 1, so (1 − mpc) is simply the sum of the three leakages.
• →Leakages from the circular flow: Every round of spending generates income, but a proportion leaks out through saving, taxation and spending on imports. Only the remaining fraction is re-spent domestically, so larger combined leakages shrink the multiplier.
• →Applying the multiplier to a change in injections: Once the multiplier value is calculated, the total change in national income is found by multiplying the initial injection (government spending, investment or exports) by the multiplier figure. Be precise about units — if the injection is given in billions, the answer must also be in billions.
• →Why the multiplier is greater than one: Because each round of domestic spending becomes income for another household or firm, a single injection circulates multiple times through the economy before fully leaking away, amplifying the original stimulus beyond its face value.
• →Factors that reduce the multiplier in practice: A high marginal propensity to import (common in open economies such as the UK), high marginal tax rates, and a high marginal propensity to save all push the denominator upward and therefore reduce the final multiplier value.

This question tests understanding of the Keynesian multiplier mechanism, specifically a student's ability to apply the formula mathematically and interpret the result in terms of changes to national income. The underlying economic principle is that injections into the circular flow generate a magnified effect on output because spending in one period becomes income in the next. This is assessed under Edexcel spec point 2.4.4.e, which covers the multiplier as part of the broader macroeconomic topic of national income determination. Students are expected not only to recall the correct formula but also to substitute given values accurately, show their working, and communicate the economic meaning of the figure they calculate.

Examined 3 times across Edexcel since 2017.

The highest tariff recorded is 4 marks, and both 4-mark instances used the command word "Calculate", indicating that showing a clear numerical method and arriving at a correct answer are what the mark scheme rewards at that level.

• →National Income — understanding how national income is measured and what constitutes an injection or leakage is essential context for making sense of what the multiplier is actually multiplying.