Fiscal multiplier

The fiscal multiplier is the factor which relates an increase or decrease in real GDP, to the decrease or increase in the country's budget balance, that causes it.

Theoretical background

The multiplier effect model is an extension of the basic spending multiplier model that relaxes the simplifying assumptions of that model. It extends an identity that was concerned with nominal (monetary) flows to create a relationship between a monetary injection and the consequent change in real (inflation-corrected) GDP. The outcome, though still termed "the multiplier", is a factor that is not necessarily greater than one, and whose value is dependent upon a range of behavioural and environmental influences.