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. Which of the following does this type of effect on spending illustrate?
A)the multiplier effect
B)the crowding-out effect
C)the marginal propensity to consume effect
D)the catch-up effect

Question

Quizplus · Accepted Answer

This scenario illustrates the multiplier effect, as government spending on infrastructure leads to increased spending and economic activity through multiple rounds of spending by workers and firms.

The Government Buys a Bridge