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Answer to Question #67721 in Macroeconomics for Mohamed

Question #67721
1. In 2012 a study published from the International Monetary Fund (IMF) reported that the fiscal
multiplier for the periphery of Eurozone was roughly equal to 0.5. One year later, IMF
recognised its mistake reporting that the fiscal multiplier was approximately equal to 1.7.
Explaining what the fiscal multiplier is, discuss the above statement.
Expert's answer
The fiscal multiplier is the ratio in which the change in a nation's income level is affected by government spending. The fiscal multiplier is used to measure the effect of government spending (fiscal policy) on the subsequent income level of that country. The formula for fiscal multiplier is: Multiplier = 1/(1 - MPC), where MPC - marginal prospensity to consume and MPC < 1, so multiplier can't be lower than 1.

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