• The fiscal multiplier measures the effect that an increase in government spending will have on the national economic product or gross domestic product (GDP).

  • The theory of the fiscal multiplier is based on the idea of marginal propensity to consume (MPC), which quantifies the increase in consumer spending, as opposed to saving, due to an increase in the income of an individual, household or society.
  • Evidence suggests that lower income households have a higher MPC than higher income households.