Below is short excerpt from a recent article by Paul Krugman talking about the fiscal multiplier (Keynesian multiplier). According to him, the research is recent years points to the actual number being around 1.5. That means that rGDP would go up $1.5 billion (perhaps a little less) if the government were to spend $1 billion.
The fiscal multiplier — the increase in real GDP per dollar of government stimulus spending, or the fall per dollar of austerity cuts — has assumed a lot of significance in recent years. When Bernstein and Romer assumed that it was 1.5, Robert Lucas accused them of “shlock economics“, and smeared Romer’s professional ethics. Since then there has been quite a lot of empirical work, which generally indicates a multiplier of about … 1.5.
That said, I still do believe that the multiplier is not much bigger than 1 — indeed, around 1.5; partly because of the econometrics, but also because taxes and transfers act as automatic stabilizers.
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