The 'Fiscal Multiplier' measures the ratio of the change in national income to the initial change in ___ that caused it.
- six
- Demand deposits
- government spending (or autonomous expenditure)
- below
Answer: government spending (or autonomous expenditure)
When the government injects a certain amount of money into the economy (e.g., building a highway), that money becomes income for workers, who then spend a portion of it, creating income for others. The fiscal multiplier quantifies this ripple effect, showing how an initial $1 of government spending can ultimately generate more than $1 in total GDP growth.