ABSTRACT
This chapter discusses three different multipliers: government, investment, and spending by foreigners. It shows how to measure the total impact on the economy by measuring the multiplier. The chapter addresses the investment multiplier, but it is important to remember that the process works for other increases in spending as well. The direct effect of new investment is the purchase of new equipment, buildings, and inventory. The main limitations or qualifications of the investment multiplier are possible increases in imports, possible increases in taxes, possible paying down of debt, possible impacts of changes in wealth, possible increases in retained earnings by corporations, and time lags because the spending increases do not occur instantaneously. The government multiplier comes into play whenever the government changes the level of spending on anything from bombs to hospitals. The multiplier also works when the government hires more people to work in a variety of fields, from construction to teaching.
