The government buys a bridge.The owner of the company that builds the bridge pays her workers.The workers increase their spending.Firms that the workers buy goods from increase their output.This type of effect on spending illustrates
A)the multiplier effect.
B)the crowding-out effect.
C)the Fisher effect.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

This scenario illustrates the multiplier effect, where an initial increase in government spending leads to a larger total increase in spending as the money circulates through the economy. In this case, the government's purchase of the bridge creates income for the company owner, who then uses that income to pay her workers. The workers, in turn, spend that income on other goods and services, creating additional income and spending for those firms, and so on. This multiplier effect can lead to a significant increase in overall economic activity.

The Government Buys a Bridge