Fiscal Multiplier

Fiscal multiplier explains to what extent an economy’s GDP is affected by reduced spending. India’s Fiscal Multipliers stands at ~0.55 which says of every reduced spending of Rs.100, GDP of India falls by 55rs. Studies indicate that closed economies and economies which follow semi-floating method of currency valuation have a higher number. Hence when we hear that government will be reducing spending by say ~1000BN then GDP may see a dip of ~550BN.

Appreciate your inputs.

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