Investment Multiplier

AAA

DEFINITION of 'Investment Multiplier'

The term investment multiplier refers to the concept that any increase in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy. The multiplier attempts to quantify the additional effects of a policy beyond those that are immediately measurable.

INVESTOPEDIA EXPLAINS 'Investment Multiplier'

The investment multiplier tries to determine the financial impact for a public or private project. For instance, extra government spending on roads can increase the incomes of construction workers as well as that of the suppliers of the materials necessary for the project. These people may in turn spend some of the this extra income in the retail sector, thereby boosting incomes of workers there as well.

RELATED TERMS
  1. Consumer Spending

    The amount of money spent by households in an economy. The spending ...
  2. Consumption Function

    The consumption function is a mathematical formula laid out by ...
  3. Disposable Income

    The amount of money that households have available for spending ...
  4. Discretionary Income

    The amount of an individual's income that is left for spending, ...
  5. Personal Income

    Total compensation received by an individual. Personal income ...
  6. Whartonite

    A graduate of the Wharton School of Business at the University ...
RELATED FAQS
  1. How do you calculate the marginal propensity to consume?

    The standard formula for calculating the marginal propensity to consume, or MPC, is marginal consumption divided by marginal ... Read Full Answer >>
  2. What is the relationship between research and development and innovation?

    Although it's possible to achieve innovation without research and development and it's possible to conduct research and development ... Read Full Answer >>
  3. How is minimum transfer price calculated?

    A company that transfers goods between multiple divisions needs to establish a transfer price so that each division can track ... Read Full Answer >>
  4. How does neoclassical economics relate to neoliberalism?

    While it may be likely that many neoliberal thinkers endorse the use of (or even emphasize) neoclassical economics, the two ... Read Full Answer >>
  5. In what manner will a recession likely affect the marginal-propensity-to-save rate ...

    The marginal propensity to save, or MPS, rises in most, though not all, recessions. This makes perfect sense on an individual ... Read Full Answer >>
  6. Why would a country's gross domestic product (GDP) and gross national income (GNI) ...

    A country’s gross domestic product, or GDP, and gross national income, or GNI, are likely to differ considerably because ... Read Full Answer >>
Related Articles
  1. Economics

    What Is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  2. Options & Futures

    Increase Your Disposable Income

    Here are four quick and easy ways to up your spending money.
  3. Economics

    What is a Resident Alien?

    A resident alien is a foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship.
  4. Economics

    Explaining Protectionism

    Protectionism is government measures that limit imports into a country to protect commerce within that country against foreign competition.
  5. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  6. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  7. Economics

    Understanding Natural Unemployment

    Natural unemployment is often defined as the lowest rate of unemployment an economy will reach.
  8. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.
  9. Economics

    Is Texas The Future Of America?

    The top three fastest-growing cities are located in Texas and 20% of jobs created between 2009 and 2014 were in the Lone Star State.
  10. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.

You May Also Like

Hot Definitions
  1. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  2. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  3. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  4. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  5. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  6. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!