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. What 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 investment accelerator effect

Question

Quizplus · Accepted Answer

This scenario describes the multiplier effect, where an initial increase in spending leads to further rounds of increased spending as the income generated by that spending is then spent by others.

The Government Buys a Bridge