What is the Multiplier Effect?

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During the time of economic crisis starting around 2010 different rationalities have been taken to try and continue economic growth while maintaining a stable government system that is helping and not hurting. When examining government spending and how it affects the growth of the Gross Domestic Product (GDP) there seems to be disagreements on if it was helping or damaging the prospective growth that could be made. By using the Multiplier Effect the government can estimate how to adjust their government spending and how it effects the spending of the consumer, investments and spending of country’s exports. In time of economic crisis the government has a choice to cut spending or increase spending for public goods and services. “In 2009, …show more content…
This is where the multiplier effect can be used. It give the government a way to measure the economy as a whole. Increasing the spending would then create a trend of spending increasing the economy ideally. By increasing government spending it can also increase the stress on the tax payers unless there is a stimulus program that is increasing the incentive to spend. When the government increase taxes it also decreasing the consumers willingness to spend and to invest known as crowding out. This makes a reduction in the economy. The trend seen in Stratmann and Okolski is that the stimulus may work but it could also not live up to its expectation of saving the economy and actually decreasing the the process of growth. This happens mainly when money is allocated to areas that are not in need due to things like political gain.

In the article “Should the Government Spend or Invest Money” by William Fulton, I like his approach to first explaining the difference in spending and investing. Spending has a short term positive effect on the economic condition at hand. So spending is letting go of money now and getting immediate action, investment is letting money go now and expecting a financial return. For example, when President Obama,like President Roosevelt, created a stimulus for the
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