MPC and multiplier | Macroeconomics | Khan Academy

Courses on Khan Academy are always 100% free. Start practicing-and saving your progress-now: www.khanacademy.org/economics...
Introduction to the marginal propensity to consume and the multiplier
Watch the next lesson: www.khanacademy.org/economics...
Missed the previous lesson? www.khanacademy.org/economics...
Macroeconomics on Khan Academy: Topics covered in a traditional college level introductory macroeconomics course
About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content.
For free. For everyone. Forever. #YouCanLearnAnything
Subscribe to Khan Academy's Macroeconomics channel: / channel
Subscribe to Khan Academy: kzbin.info_...

[@brendanwhipple6787]

"Lemme 'try' and draw"....I feel like such an inept artist if he can just whip that up.

[@jawadaslam9326]

For people thinking that same money is being exchanged so nothing is multiplied. This may help you understand. When farmer gives $1000, the builder builds something worth $1000 for the farmer. So output=$1000 Then the builder buys goods worth $600 from the farmer. So output=$600 The output is already 1000+600=$1600 This goes on and in the end $2500 worth of goods are produced as a result of injecting $1000

[@taintedruins]

Having studied this in a traditional lecture course, seeing 1/MPS explained mathematically blew my mind and really solidified my understanding of the process.

[@user-zg1jl2zw3q]

I wish my Econ teacher actually shared this in class. It’s fascinating to see something I’m learning in calc being used in Econ. Thank u for encouraging learning!

[@M_Chu]

Firstly, WOW. I'm siting here eating my breakfast, but i have a Macro Econ Final coming up in an hr, so I wanted to do some quick last-minute review. I'm glad I randomly searched this up instead of just watching some random KZbin vid while i eat. HAHAHA. It was very helpful. All your vids are very Helpful! Just wanted to leave a comment to Thank You, Sir. Or thanks "Khan Academy." o_o

[@ceylintellioglu]

How was your exam? Did it go well? You probably dont remember it by now but mine is tomorrow lol

[@JagmohanSingh05]

​​@ceylintellioglu how did urs go lol mines in 3 weeks

[@jing9949]

This video is extremely helpful. I didn’t know why spending multiplier is 1/(MPS+MPI). It gave me answer I wanted.

[@alkerbix]

Love the videos, they are clear and concise and good recaps that go over the basics

[@AFKavya]

I really thank Khan academy which works really hard in order to clear the concepts among the students...

[@shareef3743]

THANK YOU!!!! Thank you so much!!! I read my econ textbook and vaguely understand it then i get on here and get it very very well, thank you so much Sal (sorry if that is not how you spell it). I know you will probably see this and ignore it but seriously THANK YOU!!!

[@Bejonboxbreaks]

Thanks for the videos. You're helping me study for my macro exam.

[@miriamperez4812]

This video is amazing. Easy to understand. Thank you!

[@pradeepc1]

Very nicely described.. Thanks Khan academy.

[@richachandra518]

You r a legend.. The way u teach is commendable🙏!i will be always a dependent variable for ur lectures😅

[@davidstanulescu655]

Thank you literally saving my econ mark

[@Lifewith_Jen]

Thank you very much !!

[@pabiedaisy8164]

coolest explanation ever!

[@zhen3356]

This was very well explained. c:

[@thl7917]

Always curious. Is he writing and drawing by using his mouse or some kind of drawing machine?

[@WashingtonMonster86]

Dude, I've always wondered that too! Someone please answer!

[@BGutierrez111]

khanacademy.desk.com/customer/portal/articles/329318-what-software-program-equipment-is-used-to-make-khan-academy-videos-

[@alexmcdonnell1670]

He is probably using some kind of drawing tablet

[@fromthe3128]

When using the calculator, the way the cursor moves looks like he’s using a mouse

[@naffetiahmed7855]

شكرا جزيلا

[@slocamoe]

Thank you.

[@inkspots3748]

We can use some calculus ways , like summations ,,,,,,, then based on the test of geometric series , we can add it up to the result !

[@theOman333]

good thinking

[@relaxingandpeacefulsounds4220]

You are God sent

[@Divyasree419]

Thanks a Lot :)

[@Canadian789119]

Nice, man

[@kaushalmaurya4550]

Can MPC be different for different consumer in an economy?

[@latadua9804]

Pls explain macroeconomic dynamics

[@thatnewguy23]

Ok so spending more in a growing economy keeps things going and improves things further. What happens when you spend less in a failing economy, when MPC is low?

[@adampecsek]

I wish more econ texts explained the derivation of formulas like this, rather than "here's the fisc. multipler...memorize it." This sort of explanation would take two sentences and one two lines of math, and makes it far easier to learn what's going on.

[@shawn576]

This guy's writing with a mouse is a lot better than my writing with a pen

[@zahirahdahlan]

thankyou sir

[@timblebear]

Khan can even draw well. What CAN'T he do?!

[@history797]

WOW NICE MATH AND I PUT YOUR VIDEO ON GOOGLE+ NOW

[@lungiledlamini7842]

this is quite confusing though. or is it because you're only using only the builder/farmer as an example to explain the concept of consumption?

[@CR250RidR]

How does 1,000$ just magically become 2,500$ tho??? farmer gives the builder 1,000$ builder now gives farmer 600$ leaving him 400$ leftover Aren’t they just sharing a thousand dollars back and forth???

[@raghav3857]

We are counting here the value of output.... I agree 1000 dollar is bieng used back and forth but the output is increasing after every transaction. And that how economy works.

[@prashikjadhav3954]

If I give you 1000 dollars and then you give me the same 1000 dollars, that's an output of 2500 dollars

[@jawadaslam9326]

When farmer gives $1000, the builder builds something worth $1000 for the farmer. So output=$1000 Then the builder buys goods worth $600 from the farmer. So output=$600 The output is already 1000+600=$1600 This goes on and in the end $2500 worth of goods are produced as a result of injecting $1000. I'm pretty late and it may not help you but perhaps it'll help others.

[@amazingshadow991]

this helped alot thank you very much ^_^

[@JagmohanSingh05]

How did your exams go (12 years later 😂)

[@lurkio77]

what happens when MPC is over 100% i.e. people use debt to finance their lifestyle ?

[@rcdny]

Wow, we can have infinite output if MPC =100%. I wish Mr. Khan would use his resources more wisely and make videos debunking Keynesian economics

[@iamdabossofnepal]

But isn't the total amount of money always going to stay as the initial investment? If i got a $50 bill today, and spent it around my house, the only increase in output would be that $50, wouldn't it? Because that dollar bill cannot produce more dollars..? @khanacademy

[@CR250RidR]

Yes omg I’ve been wondering this same exact thing for so long I need it answered. I’m pretty sure it’s money that’s already in circulation on top of the new injection of money

[@migs922]

Your farmer looks like Heisenberg

[@delonjamesnaidu]

This.

[@derffykins12]

The way you say dollar is funny.

[@hossamahmed3045]

woooow

[@seivhe]

so 2.5 is the multiplier and not the 2,500?

[@seivhe]

thank you

[@MrTugwit]

The fiscal "multiplier" is about increments. At 8:50 Khan Academy shows ΔTotal Output = ΔSpending x (5/2). That's illegal addition: ΔSpending and ΔTotal Output, before multiplication. The result using legal math is: ΔTotal Output = ΔSpending x (5/2) 0 = 0 x (5/2) [start at zero increment] 0 = 0 [Multiply] 1000 = 1000 [Add] PEMDAS is grade school stuff. What Khan Academy actually did is this: ΔTotal Output = ΔSpending x (5/2) 1000 = 1000 x (5/2) [Add] 1000 = 2500 [Multiply] 0 = 1500 $1500 from nowhere. Only instead of showing the $1000 value on the left side, he only showed Total Output.

[@MrTugwit]

+Nicolas van Hell Keynes' "multipliers" are for spending INCREMENTS, deltas. Here are Keynes' original 2 equations, with ΔI = $1: 1) ΔY = ΔC + ΔI 1 = 0 + 1 2) ΔY = k x ΔI 0 = k x 0 [Start at delta zero] 0 = 0 [Multiply before adding] 1 = 1 [Add $1 ΔI] With LEGAL math, both equations give the same result. If you put a value for ΔI before multiplying, you've done illegal math. P-E-MD-AS P-E-MD-increments P-E-MD-deltas You can't multiply the spending increment, except by 1 or 0. Keynes' "multiplier" is "k". k = 1/(1-b) = ΔY/ΔI = 1/1 = 1 b = 1 -(1/k) = ΔC/ΔY = marginal propensity to consume ΔC/ΔY = 0/1 = 0 Investment has zero propensity to consume. Keynes did this: 1) ΔY = ΔC + ΔI 1 = 0 + 1 2) ΔY = 1/(1-0.9) x ΔI 1 = 1/(1-0.9) x 1 [Add $1 ΔI before multiplying. That's illegal.] 1 = 10 [Multiply] 0 = 9 Nine dollars of nonsense, which is why we have over $19 TRILLION government debt. And notice: ΔY = k x ΔI ΔY/ΔI = k ΔY = (ΔY/ΔI) x ΔI ΔY = ΔY To calculate the value of ΔY, you must first know the value of ΔY. And the only way you can get the value of ΔY is from equation 1. Keynes' multiplier concept is complete nonsense. P-E-MD-AS

[@sumayyahassan7940]

Mr farmer looks like heisenberg 😂😂

[@uniconism]

well the video was uploaded 2 minutes before you posted that comment, and yes, I'm stalking you as well.

[@amazingshadow991]

how do u know that for surre? are u stalking me?

[@missrainberry660]

the farmer looks like walter white ! (breaking bad)

[@uniconism]

lolwut who's arguing? whats broken? haha:P

[@fordguy001]

So if governments taxed their people less than we would receive more of our own money to spend into this vicious circle....hmm. Even though taxes would be less, there would be more money transactions going around from people that are spending more of their own money to tax from so governments can gather their revenue. It's like taxing a smaller slice of the pie, but having more pie. So less is more....for everyone!!!

[@the_agrajag]

Mr. White? Jesse?

[@axorussx1346]

Bro i thought it was "multiplyer" but i was gonna search markiplier

[@raiyanhossain1128]

can't u give a simple definition in 1 or half sentence with easy words what whole word can understand then give a clear example then then xplain man what r u doing give the main thing in 1 sentence like in demand if prices goes up demand goes down like this in 1 sentence then xplain with graphs or xmples

[@redcrossman9014]

you literally took 10 mins to say nothing........

[@JagmohanSingh05]

looks like walter white loll

[@51MontyPython]

Personally I think the entire multiplier concept is a stupid one, with no real practical application in reality, especially considering the flawed reasoning behind it (that this number will be the same for everyone, or that this MPC is a constant), but none the less, good job explaining the concept. I will say, however that the MPC can be an indicator of economic health, particularly from the standpoint of the individual, though really only more in terms of the amount of it (the lesser it is, the greater implication that one's needs are already met), rather than this whole nonsensical notion of the "multiplier effect." What is really important is not necessarily how much money is spent in an economy, but the effect of that money which _is_ spent on allocating resources which have alternative uses, and the type and degree of net benefits in both the short and long run which arise from it both for individuals and for the economy at large.

[@uniconism]

but you didn't even watch the whole video yet...

[@Si-rn6nz]

man khan we're not here to watch u draw

[@MrTugwit]

Khan Academy says several times, that the infinite series multiplier process, goes "on and on forever". It does take forever to complete an infinite series. It would take forever to get the $2500 he shows at 8:56. So you could never get the $2500. He uses illegal addition before multiplication, and a multiplier process that takes forever. He's talking nonsense.

[@thisisrtsthree9992]

+MrTugwit in this comment section i've seen you comment every other 3 months on average (since 9 months ago), and noone has replied to you. I don't know if you have heard about convergent series, cause that's what Sal (that's the name of the Khan Academy professor in this case) is applying here. An infinite sum has a finite value, you don't need to make the whole sum to get the value of the sum, cause you can use convergent series to demonstrate that the sum inifintely approaches the 2500 value in this case. So you can say a couple things about this: if you start with 1000, the total sum has to be greater than 1000; and the terms of the sum have to approach zero to avoid increasing the sum above a finite number. So yeah, this sounds crazy, but if you want to see something really interesting, search for this sum: 1 + 2 + 4 + 5 + 6 + 7 +.... + infinite = (-1/12) that, i couldn't explain to you at all.

[@MrTugwit]

+ThisIsRTSThree999 Keynes' original investment "multiplier" equations: 1) ΔY = ΔC + ΔI 2) ΔY = (1/(1-b)) ΔI mpc = b Keynes' investment "multiplier" infinite series: ΔY + bΔY + b^2ΔY + ... = (1/(1-b)) ΔI Unless you use P-E-MD-AS, that's an infinite series of illegal addition: ΔY before multiplication. (1/(1-b)) ΔI is illegal addition: ΔI before multiplication. To use P-E-MD-AS you must start at delta zero so you can multiply before adding. If you use P-E-MD-AS you get: ΔY = ΔI Khan Academy is adding before multiplying, and that's nonsense. You get the initial $1000 ΔI instantly. It would take FOREVER to get the next $1500. And $2500 is the MAXIMUM you could ever get. Is the "saved" fraction burned? And if you look at Khan Academy's Keynesian Cross video you will see that his "multiplier" line not only converges to the maximum number at infinity it extends beyond infinity, beyond forever.

[@thisisrtsthree9992]

MrTugwit no my friend, to explain this Keynes is not relevant. we only need Convergent Series. Also i subscribed to your channel :) loved those bear animated videos.

[@MrTugwit]

+ThisIsRTSThree999 The video is "MPC and the Multiplier". He's talking about Keynes' bogus "multiplier" concept guy. What happens to the "saved" fraction?

[@MrTugwit]

+ThisIsRTSThree999 You've told me that Keynes' "multiplier" is not relevant to a video about Keynes' "multiplier". That's nonsense. And Khan Academy only accounts for the mpc fraction. He doesn't account for the (1 - mpc) fraction. What happens to the (1 - mpc) fraction? What happens to savings?

[@zmoney1001]

Why do you repeat yourself so much. It makes me want to be deaf.

[@akyeamaahkwakye4500]

Khan academy English

[@tikhu527]

Zachary Samuel He does it for old people like me who are taking notes! 😍