Question
The finance minister in the recent budget highlighted the importance of multiplier effect of government spending. The significant push by the government to the infrastructure
The finance minister in the recent budget highlighted the importance of multiplier effect of government spending. The "significant push" by the government to the infrastructure sector in the Union Budget is expected to have a multiplier effect on the core sectors like steel and cement, industry body IRMA on Tuesday said. In a statement, the Indian Refractory Makers Association (IRMA) said, "There is a significant push in infrastructure sector, especially transport and logistics, while capex expenditure has been raised by whopping 35.4 per cent from Rs 5.54 lakh crore to Rs 7.50 lakh crore." This is likely to have a multiplier effect on the core sector industries like steel and cement, and in turn give a boost to the domestic refractory industry, the body said. a) What is capital spending multiplier? b) Assume that capital expenditure multiplier was 3.25 in 2019. How do you interpret this value? c) Derive the fiscal policy multiplier. d) Why do you think Govt. of India is giving so much importance to capital expenditure multiplier relative to revenue expenditure one?
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