multiplaatiotekijällä

A multiplaatiotekijä, often translated as multiplier effect, is an economic concept that describes how an initial change in spending leads to a larger final change in aggregate demand. When an injection of new spending enters the economy, such as through government investment, increased exports, or a rise in consumer or business confidence, it not only increases the income of the direct recipients of that spending but also prompts them to spend a portion of their new income. This second round of spending then becomes income for others, who in turn spend a part of it, and so on.

The size of the multiplier effect depends on the marginal propensity to consume (MPC), which is the fraction of additional income that households or businesses spend. The formula for the simple multiplier is 1 / (1 - MPC). For example, if the MPC is 0.8, meaning people spend 80% of any extra income they receive, the multiplier would be 1 / (1 - 0.8) = 1 / 0.2 = 5. This implies that an initial $100 increase in spending could ultimately lead to a $500 increase in overall economic activity.

However, the real-world multiplier is often smaller than the simple theoretical one due to leakages from the spending stream. These leakages include saving a portion of extra income (which is not spent), paying taxes, and spending on imports. These factors reduce the amount of money that continues to circulate in the domestic economy, thereby dampening the overall impact of the initial spending injection. The concept is crucial for policymakers when considering fiscal stimulus measures.