Multiplier Effect

Definition

The multiplier effect refers to the phenomenon where an initial change in spending or investment leads to a larger final impact on aggregate demand and national income.

Related terms

Fiscal Policy: Government actions related to taxation and spending aimed at influencing economic conditions.

Consumption Function: A mathematical equation that shows how changes in disposable income affect consumer spending.

Accelerator Principle: The idea that changes in investment are driven by changes in expected future levels of consumption.