BackMultiplier Effect of Investment Spending definitions
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1/15BackSkip to main contentBackMultiplier Effect
A chain reaction where initial investment spending leads to repeated rounds of increased consumption and total economic output. Investment Spending
Expenditure by firms on capital goods, triggering higher household incomes and further economic activity. Household Income
Money earned by individuals or families, which rises when firms invest and hire more workers. Consumption
Spending by households on goods and services, which increases as incomes rise from investment. Marginal Propensity to Consume
Fraction of additional income that households spend rather than save, influencing the size of the multiplier. Marginal Propensity to Save
Portion of extra income that households set aside, equal to one minus the marginal propensity to consume. GDP
Total value of goods and services produced, which grows by more than the initial investment due to the multiplier. Multiplier Formula
Equation 1 divided by 1 minus the marginal propensity to consume, used to calculate total output increase. Chain Reaction
Series of repeated spending rounds where each increase in income leads to further consumption. Aggregate Demand
Overall demand for goods and services in the economy, boosted by the multiplier effect from investment. Infinite Series
Mathematical concept representing repeated rounds of spending, summed up by the multiplier formula. Initial Expenditure
The first round of investment spending that sets off the multiplier process in the economy. Fiscal Policy
Government actions affecting investment and consumption, influencing the multiplier and aggregate demand. Economic Growth
Expansion of total output, accelerated by higher investment and a larger multiplier. Denominator
The value 1 minus marginal propensity to consume in the multiplier formula, determining the size of the effect.
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