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. Inflation

    The rate at which the general level of prices for goods and services ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  6. Separation Of Powers

    An organizational structure in which responsibilities, authorities, ...
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. Economics

    How is the invisible hand affected in a communist or socialist economy?

    Discover why the invisible hand of the market is compromised by socialist and communist economies, where the government controls the means of production.
  6. Economics

    What is the affect of the invisible hand on the government?

    Find out why government policy goals are often frustrated by the same forces that guide the invisible hand of the market towards efficient outcomes.
  7. Economics

    How does a bull market affect the economy?

    Find out why it can be difficult to prove any real causal link between rising stock market prices and a healthy, growing national economy.
  8. Economics

    How does the invisible hand affect a capitalist economy?

    Take a deeper look at how the invisible hand of the market works and why it is so crucial for understanding how capitalist economies function.
  9. Fundamental Analysis

    What are some examples of economies of scale?

    Take a look at different examples of economies of scale, including how marginal costs can be reduced through external and internal factors.
  10. Economics

    What impact does quantitative easing have on consumers in the U.S.?

    Dig deeper into the Federal Reserve's quantitative easing policies and what potential impacts they may have on American consumers.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center