Here's an example and it shows why the more people spend the stimulus rather than save it the higher the multiplier is. Bush's tax cuts had a very low multiplier.
Shorthand for the way in which a change in spending produces an even larger change in INCOME. For instance, suppose a GOVERNMENT loosens FISCAL POLICY, increasing net PUBLIC SPENDING by pumping an extra $10 billion into education. This has an immediate effect by increasing the income of teachers and of people who sell educational supplies or build or maintain schools. These people will in turn spend some of their extra money, putting more cash into the pockets of others, who spend some of it, and so on.
This can be squandered if there is a high trade deficit:
Another factor affecting the size of the multiplier effect is the propensity to purchase imports. If, out of extra income, people spend money on imports, this demand is not passed on in the form of extra spending on domestically produced output.
Current Events » in reply to re: the private sector
re: the private sector