When an increase in government purchases increases the income of some people, and those people spend some of that increase in income on additional consumer goods, we have seen a demonstration of ?
Correct answer: A. The multiplier effects
- A. The multiplier effects
- B. supply side economics
- C. None of these answers
- D. The crowding out effect
Explanation
The multiplier effect occurs when an initial increase in government purchases raises someone's income, leading to further consumption and income increases for others. Each spending round is smaller when some income is saved or taxed.
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