Fiscal Multiplier

AAA

DEFINITION of 'Fiscal Multiplier'

The ratio in which the change in a nation's income level is affected by government spending. The fiscal multiplier is used to measure the effect of government spending (fiscal policy) on the subsequent income level of that country. In theory, increased fiscal spending can lead to increased consumption, which then leads to a cycle of consumption and wealth creation.

INVESTOPEDIA EXPLAINS 'Fiscal Multiplier'

A multiplier greater than one shows that government spending on a national income levels is deemed to have been enhanced. As consumption grows in this model, demand grows from initial levels as well and results in the multiple effect of wealth as demand keeps growing and subsequently matches consumption.

RELATED TERMS
  1. Fiscal Policy

    Government spending policies that influence macroeconomic conditions. ...
  2. Fiscal Deficit

    When a government's total expenditures exceed the revenue that ...
  3. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  4. Inflation

    The rate at which the general level of prices for goods and services ...
  5. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  6. Private Finance Initiative - PFI

    A method of providing funds for major capital investments where ...
RELATED FAQS
  1. How can a change in fiscal policy have a multiplier effect on the economy?

    A change in fiscal policy has a multiplier effect on the economy because fiscal policy affects spending, consumption and ... Read Full Answer >>
  2. How does the International Chamber of Commerce define the term 'Free on Board' (FOB)?

    The International Chamber of Commerce (ICC) is one of world's largest business organizations and has published a set of trade ... Read Full Answer >>
  3. What determines if an international trade is Ex Works (EXW) or Free on Board (FOB)?

    "Ex works" (EXW) and "free on board" (FOB) are international trade terms that dictate the responsibilities of buyers and ... Read Full Answer >>
  4. What does the rule of 70 indicate about a country's future economic growth?

    The rule of 70 could be used to indicate the approximate number of years that it would take a company's economic growth to ... Read Full Answer >>
  5. How is the rule of 70 related to the growth rate of a variable?

    The rule of 70 is related to the growth rate of a variable because it uses the growth rate in its approximation of the number ... Read Full Answer >>
  6. How can I create a yield curve in Excel?

    You can create a yield curve in Microsoft Excel if you are given the time to maturities of bonds and their respective yields ... Read Full Answer >>
Related Articles
  1. Economics

    Understanding Supply-Side Economics

    Does the amount of goods and services produced set the pace for economic growth? Here are the arguments.
  2. Economics

    The Uncertainty Of Economics: Exploring The Dismal Science

    Learning about the study of economics can help you understand why you face contradictions in the market.
  3. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  4. Personal Finance

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  5. Investing Basics

    What is a Nominal Value?

    The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life.
  6. Economics

    Explaining the Human Development Index

    The Human Development Index (HDI) is a metric developed by the United Nations to take the emphasis off economic growth and focus on human wellbeing.
  7. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  8. Economics

    Chinese Opportunities For A Changing Child Policy

    China's one-child policy is changing, and investors are looking for ways to cash in. The reform might not have the effects that many anticipate, however.
  9. Taxes

    Tea Party Vs. Republican Party: Who Will Win In 2016?

    What agendas define the rift between the Tea Party and the Republican establishment, and which side will win the presidential nomination in 2016?
  10. Investing

    Why Some Investors Are Tilting Toward TIPS

    Last month’s five-year TIPS auction drew nearly $48 billion in interest, a sign of recent renewed demand for this inflation indexed asset among investors.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center