The government buys new weapons systems.The manufacturers of weapons pay their employees.The employees spend this money on goods and services.The firms from which the employees buy the goods and services pay their employees.This sequence of events illustrates
A)the accelerator effect.
B)the multiplier effect.
C)the chain effect.
D)the bandwagon effect.

Question

Quizplus · Accepted Answer

This sequence of events illustrates the multiplier effect, where one initially increased expenditure leads to further increases in spending by successive rounds of re-spending. In this case, the government's purchase of new weapons systems leads to increased employment and wages for the weapons manufacturers, who then spend this money on goods and services, thereby increasing demand and employment in other sectors of the economy.

The Government Buys New Weapons Systems