Module 21: Fiscal Policy and the Multiplier ? Why fiscal policy has a multiplier effect How the multiplier effect is influenced by automatic stabilizers ? Multiplier Effects of an Increase in Government Purchases of Goods and Services Government purchase ? firms earn revenues ? money flows to households ? increase disposable income ? rise in consumer spending ? firms increase output ? rise in disposable income ? Multiplier Effects of Changes in Government Transfers and Taxes Fiscal Policy: government purchases of goods and services change transfer payments or taxes change in government transfers or taxes shifts the aggregate demand curve by less than an equal-sized change in government purchases