The magnitude of the impact on overall economic activity resulting from a change in autonomous spending, such as government expenditure or investment, is quantified through a specific ratio. This ratio, derived from macroeconomic models, reflects the total increase in national income that arises from each incremental unit of initial spending. For example, if a government invests $1 million in infrastructure and the resultant increase in national income is $2.5 million, then this ratio equals 2.5.
The significance of this calculation lies in its capacity to inform policy decisions. Governments and economists use this measure to estimate the broader economic consequences of fiscal policies. A higher value indicates that initial spending will have a greater ripple effect throughout the economy, potentially leading to increased employment, consumption, and further investment. Historically, understanding this relationship has been central to Keynesian economics and its advocacy for government intervention to stabilize economic cycles.