An initial increase in government spending of $100 billion can create more than $100 billion through what economists call:

Question

Quizplus · Accepted Answer

The correct answer is (A) a multiplier effect. When the government increases its spending, it stimulates the economy, and this stimulates further spending by households and businesses. The additional spending then creates more income and jobs, which, in turn, lead to even more spending. This process continues, creating a multiplier effect, where each dollar of increased government spending leads to more than one dollar of increased GDP.

An Initial Increase in Government Spending of $100 Billion Can