Fiscal Policy & Multipliers

1) Government Spending Multiplier

2) TAx Multiplier

3) BALAnced Budget Multiplier

 1) Government Spending Multiplier

•The ratio of the change in the

equilibrium level of output to
a change in government
spending

Govt. Spending Multiplier = 1/ MPS

 2) Tax Multiplier

•The ratio of change in the

Equilibrium level of output to
a change in taxes
TAx Multiplier = - [ MPC/MPS]
 3) BalancedBudgetMultiplier

The ratio of change in the equilibrium

level of output to a change in
government spending where the
change in goverment spending is
balanced by a change in taxes so as
not to create any deficit.
BALANCED Budget Multiplier= 1