Fiscal Multiplier

What is the 'Fiscal Multiplier'

The fiscal multiplier is 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.

BREAKING DOWN '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.

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RELATED FAQS
  1. How can a change in fiscal policy have a multiplier effect on the economy?

    Learn about how changes in fiscal policy have a multiplier effect on the economy. The goal of expansionary fiscal policy ... Read Answer >>
  2. Why is the multiplier effect associated with Keynesian economics?

    Learn what the Keynesian multiplier effect is and how it provided a justification for increased government spending in the ... Read Answer >>
  3. How successful is fiscal policy in guiding the national economy?

    See why it is difficult to evaluate the impact of fiscal policy on the national economy and how fiscal tools have failed ... Read Answer >>
  4. What is the role of deficit spending in fiscal policy?

    Read about the role deficit spending can play in a government's fiscal policy, and learn why economists are torn about the ... Read Answer >>
  5. What are some examples of expansionary fiscal policy?

    Learn about expansionary fiscal policy – tax cuts and government spending – that are used by governments to boost spending ... Read Answer >>
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    Learn how monetary policy refers to bank actions to control interest rates and money supply, while fiscal policy refers to ... Read Answer >>
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