Set the consumption parameters, investment, government, and taxes. Watch the equilibrium Y where Y = E.
Y = E = a + MPC·(Y − T) + I + G
$2.0T
0.70
$3.0T
$3.0T
$3.0T
Equilibrium Y*
25.7
Consumption C
17.9
Spending multiplier
3.33
Saving (Y−T−C)
4.8
How to read the chart
The 45° line is where Y = E. The blue line is planned expenditure E(Y). They intersect at Y* — the equilibrium output. Above Y*, planned E < Y → firms cut output. Below Y*, planned E > Y → firms expand. Y* is the only stable point.
See how the spending and tax multipliers respond to different MPC values.
ΔY/ΔG = 1/(1−MPC) | ΔY/ΔT = −MPC/(1−MPC)
0.70
Spending multiplier
3.33
Tax multiplier
−2.33
Balanced-budget mult.
1.00
If ΔG = $1T, ΔY =
$3.33T
Why the difference?
A $1 spending increase enters the economy IMMEDIATELY (counts as ΔY in round 1). A $1 tax cut only adds MPC·$1 to round-1 consumption — the rest is saved. So the tax multiplier is smaller in absolute value. The balanced-budget multiplier is exactly 1.
Apply a fiscal policy and trace the round-by-round effect on Y.
Initial fiscal change
$0T
Effective multiplier
0.00
Total ΔY
$0T
Convergence (rounds)
5
The geometric series in action
Each round: ΔY adds MPC·(prev round). Sum of geometric series = ΔG/(1−MPC). After ~10 rounds, the economy is mostly at the new Y. Real-world: rounds happen continuously — the "multiplier" effect plays out over months/quarters.