Fiscal Multiplier

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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.

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?

    A change in fiscal policy has a multiplier effect on the economy because fiscal policy affects spending, consumption and ... Read Full Answer >>
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    The U.S. Social Security Administration, or SSA, is headquartered in Woodlawn, Maryland, a suburb just outside of Baltimore. ... Read Full Answer >>
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