The Multiplier Effect: Understanding the Obama Administration's Findings

The Multiplier Effect

The Obama Administration's Findings: According to computer estimates using a traditional macroeconomic model, the Obama administration found that the multiplier for tax cuts and government expenditures were 0.7 and 1.59, respectively.

Explanation: At the arrival of Obama's administration, the plan for all dollar that would be spent by the government was expected to have a turn around and the rest dollars going into savings. This was also expected for individuals. This was termed the Multiplier Effect.

Multiplier Values: It was estimated by the Obama administration that spending would have a bigger multiplier of 1.59 than tax cuts 0.7. This means that for every dollar spent by the government, there would be a greater overall increase in economic activity compared to when tax cuts are implemented.