DEFINITION of 'Multiplier'

In Keynesian economic theory, a factor that quantifies the change in total income as compared to the injection of capital deposits or investments which originally fueled the growth. It is usually used as a measurement of the effects of government spending on income, and it can be calculated as one divided by the marginal propensity to save.

BREAKING DOWN 'Multiplier'

Keynesian economic theory contends, among other things, that any injection into the economy via investment capital, government spending or the like will result in a proportional increase in overall income at a national level. The basic premise of this theory is that increased spending will have carry-through effects which result in even greater aggregate spending over time. The multiplier itself is an attempt to measure the size of those "carry-through effects".

  1. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  2. Marginal Propensity To Consume ...

    A component of Keynesian theory, MPC represents the proportion ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  4. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
  5. Multiplier Effect

    The expansion of a country's money supply that results from banks ...
  6. Economics

    A social science that studies how individuals, governments, firms ...
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