The Multiplier

The Multiplier
The Multiplier is one of the major components of Keynesian
analysis and policy. The multiplier effect can be defined as the
greater resulting income generated from an initial increase in
spending. (For example, an increase in spending of $100 will generate a
total increase in income received of $500 as the initial income is respent
by each succeeding recipient—these figures are based on an assumption
that each income receiver spends 80 percent of his additional income and
saves 20 percent, the formula being Multiplier = 1 / percent change in
saving.)