Going with my habit of overly simplified economy let's imagine economy that has only two actors in it: so that's Mr Farmer right over here I'll do my best to draw the farmer, maybe he has the mustache of some kind so that's Mr Farmer right over here, he's got a hat on so it has Mr Farmer So that is the Farmer in this economy, and we'll also have a Builder so this economy they are producing two things: they are producing food and this Builder can help mantain stuff so maybe so maybe this is Mr Builder right over here is Mr Builder. And let's say, for the sake of do here let's say that for this economy it kind of a constant that either of these fellows gets an extra dollar to spend he is going to spend 60% of it so I'll introduce a formal word that that really is another way of saying that: in this economy the marginal propensity to consume: MPC propensity to consume is open parentesis is often MPC that is equal to say 60% and or is equal to 0.6 And all this thing if someone in this economy somehow finds another dollar in their pocket they're going to spend 0.6 of that or 60% of that, so if you give the Builder, if the builder gets some extra dollar he is going to spend another 60 cents on another things Farmer if the Farmer gets another dollar he is going to spend 60% or 60 cents with the builder. Now, given this assumption let's think about what'll happen in this economy if all of the sudden one of them decided to increase their spending over there: so all the sum economy let's say the farmer discovers a sac in a drawer that he didn't realise was there currency maybe get a maybe currency in that is dollar and the farmer discovers that he he discovers a big power dollar in the sac and he say and do some repairs to my building so let's we have this kind of increase in spending that's going on, so the farmer says I'm going to spend I'm going to spend 1000 dollars and I'm going to give it to the builder, now the builder says 1000 dol, I have the marginal propensity to consume or 0.6 he is going to spend with the farmer he is going to spend 60% times 1000 dol, which is equal to 600 dol well now the farmer says 1000 somehow the builder to spend more on me much more I had 600 more I have the marginal propensity to consume of 0.6 or 60% so I'll spend 60% of that 600 dol that I've just got it will be 60% of that thing so it will be 60 decimal so it will be 0.6 times this thing which is 0.6 times 1000 or you can say 60% of this 600 dol which is going to equal to 360 dol. now the builder says I gave the initial 600 dol another 360 dollars and I have the amrginal propensity to consume of 0.6 so I'll spend 60% of that bothered on this spending he also spends 60% of this right over here and 60% of this is 0.6 times this whole thing 0.6 times this thing times 0.6 times this thing - times 0.6 times 1000 dol. Now this number right over here 60% of 360 dol I'd like to calculator to figure what it is exactly so let's say that I have it's 0.6 to the 3rd power 0.6 to the third multiply that times 1000 gives us 216 dollars. so this guy write it over here I'm going to spend 60% of that is going, and 60% of you see where it's going so it's going to be 0.6 times this thing which is already 0.6 times 0.6 0.6 times 0.6 to the 3rd power 0.6 to the 4th power times 1000 which is whatever sixty percent of 0.6 gives us 115 dollars 129, and this guy Oh I have spend 60% of that, and this goes on and on so given this think how much from that incremental increase of spending of a 1000 dollars how much total new production and spending happen in this economy so the way to think about that - so the total we can do the either way we can do kind of GDP output income expenditure these all views because economy is a very thing one persone's expenditure turns into another person's income we can say total output here measured in our agreed currency which is dollars this is now going to be original 1000 farmer spend for the builder original 1000 plus this 1st right over here this that the builder spent .6 times 1000 plus than we have this time the farmer said I'm 6 square times 1000 and than this guy I spend 60% of that and spend gives 3rd power 1000 + 0.6 to the 3rd power times 1000 and that the last keep going on and on forever theoretically 6 + 0.6 to the 4th power times 1000 and this will keep going on and on forever plus 0.6 to the 5th power 0.6 to the 6th power and going on and on forever and one of those things about mathematics equall multuply is that you can actually sum up because this value right over here is less than one ends up being infinite sum you can actually take this infinite sum and find number so just to simplify this the total output from that's kind of original 1000 we can factured 1000 new colour so we can fracturate 1000 left with one plus 0.6 plus 0.6 square + 0.6 to the third power plus 0.6 to the 4th power on and on and on and on the next video just for fun, but his write over here it's an infitinite sum geometric series and this actually simplify to as one over one minus 0.6, so whatever this number is here that will be this will be equal one over 0.4 and 0.4 is two fifths one over two fifths which is equal to 5 halfs so your total output is going to be equal to 1000 times 5 halfs and this the same thing as equal to 1000 times 2,5 which is equal to 25 hundret (2500) there is two interesting ideas going here. one is when people get a bit of more income, they're going to spend some of it adn that's the marginal propensity to consume how much you 60% of that 60% it keep going multiplied throw the economy multiplier fraction of that get spent some fraction of that get spent 1000 that first 1000 dollars got multiplied by 2,5 and that 2,5 was completely a function of what the MPC was, so we have this relationship here is that whatever the marginal propensity to consumer is that drives the multiplier that drives the multiplier all the multiplier say if you spend an extra dollar in this economy given people's MPC how much will than increase total output