Fiscal Multiplier

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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