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Economic Definition of multiplier. Defined.

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Term multiplier Definition: The cumulatively reinforcing interaction between consumption and production that amplifies changes in investment, government spending, or exports. In other words, if businesses decide to increase investment expenditures on capital goods or if government decides to expand the size of the already bloated federal deficit by spending more on national defense, then our economy's production and income are likely to increase by some multiple of this spending. The amplified increase in production and income, usually from 2 to 5 times, is what gives us the term "multiplier." The process is based on the circular flow idea the people receive income by producing goods and then spend this income on additional production.

 

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