Story: Spending in the economy

The multiplier effect

The multiplier effect

Extra spending increases incomes and creates jobs, and people then have more to spend. This second round of new expenditure in turn creates more income and jobs – and new spending. Economists call this the multiplier effect. In each round of spending some extra income may be saved, taxed or spent on imports, and this limits the size of the multiplier effect.

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How to cite this page:

Paul Dalziel, 'Spending in the economy - Spending in difficult times', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/diagram/21630/the-multiplier-effect (accessed 22 October 2018)

Story by Paul Dalziel, published 11 Mar 2010, updated 16 Sep 2016