Investment Multiplier

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.

BREAKING DOWN '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.

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