Input-Output Multipliers

Input-output multipliers measure how much economic activity in one industry (output) is generated by a change in another industry’s activity (input). For example, if a new car factory increases its demand for steel, the steel industry’s output will also grow to meet that demand. The multiplier shows the ripple effect—how an initial economic change spreads through related sectors. It is useful for understanding how interconnected industries are and predicting the broader economic impact of decisions, investments, or policy changes. Essentially, it quantifies the indirect and induced effects across the economy resulting from a change in a specific industry.