Spending multiplier

In economics, the spending multiplier effect describes a process by which an initial increase of one economic aggregate is amplified and provokes an increase in the same or/and other aggregate(s) larger than the initial raise. The idea is that the raise of a first agent income improves the situation of a second agent by the way of consumption, and so on.

The spending multiplier is a key concept in Keynesian economics for it explains how the government purchases can have a strong stimulating effect on the national output, depending on the marginal propensity to consume.