BackMultiplier Effect of Investment Spending definitions
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1/14BackSkip to main contentBackInvestment Spending
Expenditure by firms on new equipment or business expansion, initiating a chain reaction of increased income and consumption. Household Income
Earnings received by individuals or families, which rise when firms hire more workers due to increased business activity. Consumer Spending
Expenditures by households on goods and services, which grow as incomes rise from initial business investments. Marginal Propensity to Consume
Fraction of additional income that households spend rather than save, determining the strength of the spending chain reaction. Marginal Propensity to Save
Portion of extra income that households save instead of spend, inversely related to the multiplier's size. Multiplier Effect
Process where an initial increase in spending leads to multiple rounds of additional income and consumption throughout the economy. Chain Reaction
Series of successive increases in income and spending triggered by an initial economic stimulus. Gross Domestic Product
Total value of all goods and services produced, which rises by more than the initial investment due to repeated spending rounds. Infinite Series
Mathematical concept representing endless rounds of spending, summed to calculate the total impact of the multiplier. Multiplier Formula
Equation 1/(1-MPC) or 1/MPS, used to determine how much total output increases from an initial spending boost. Initial Spending
Original amount invested or spent, which sets off the multiplier process in the economy. Spending Round
Each cycle in which new income is partially spent, generating further economic activity. Denominator
Bottom part of the multiplier formula, where a smaller value leads to a larger overall multiplier. Series Analysis
Mathematical approach to summing repeated rounds of spending, underlying the logic of the multiplier calculation.
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