Increasing Public Spending

An Appropriate Measure for the Times the Country Faces

Abstract

When we hear about the effects that the increase in fiscal spending will have on our slowing economy, it seems as if we were watching a magic trick that will make GDP grow far more than the announced 9.8% increase in public spending. To understand how this works, it is necessary to grasp what the “fiscal multiplier” is. This concept refers to the effect that an increase in public spending has on GDP. We explain it as follows: when public spending increases by one million pesos, more goods and services are produced and more employees are hired, all of this directly. Continue reading...