Spending Multiplier

Definition

The spending multiplier measures how much total spending increases for each dollar increase in autonomous expenditure (such as investment or government purchases). It shows the cumulative effect on aggregate demand throughout multiple rounds of spending.

Related terms

Multiplier Effect: The process by which an initial change in spending leads to further changes in aggregate demand through successive rounds of spending.

Autonomous Expenditure: Spending that does not depend on income levels, such as investment or government purchases.

Aggregate Demand: The total amount of goods and services demanded in an economy at a given price level and time period.