Question

The government buys an airplane. the airplane manufacturer pays its workers. the workers increase their spending. firms that the workers buy goods from increase their output. this type of effect on spending illustrates

Answer 1

This type of effect on spending illustrates the MULTIPLIER EFFECT. Multiplier effect is an expansion in an economy money supply that result from the banks' ability to lend money out. Multiplier effect generally increases income and as a result increases consumers spending.