What does the government spending multiplier indicate?

The government spending multiplier indicates how much GDP will increase for every additional dollar spent by the government. When the government injects money into the economy through spending, this initial spending not only contributes directly to GDP but also leads to increased consumption and further spending by businesses and households, as the recipients of that government spending go on to spend a portion of it.

This effect occurs due to the multiplier effect, where each dollar spent circulates through the economy multiple times. For example, if the government builds a new road, the construction workers get paid, and they will spend their earnings on goods and services, supporting additional jobs and income in the economy. As this process continues, the overall increase in economic activity, reflected as an increase in GDP, becomes greater than the initial dollar amount the government spent.

In this context, the choice that corresponds to the definition and implications of the government spending multiplier is the one indicating the increase in GDP resulting from an increase in government spending.