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How fiscal multiplier amplifies government stimulus
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Prime Minister Narendra Modi at 8 pm on Tuesday announced a ₹20 trillion stimulus package, which amounts to around 10% of India’s GDP.
The exact details of the package have not been released yet, but Prime Minister said there would be a focus on small and medium enterprises, labourers, farmers and the taxpaying middle class.
In other words, there is likely to be a combination of spending and tax proposals. A government stimulus traditionally has a larger effect on the economy than its actual size due to the operation of what is known as ‘the fiscal multiplier.’ Here’s how it works.
According to economic theory, particularly the ideas of John Maynard Keynes, a rise in government spending tends to cause a disproportionate effect on economic
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