What is one primary effect of the multiplier effect on the economy?

The multiplier effect refers to the process through which an initial change in spending (often through investment or government expenditure) leads to a larger overall increase in economic activity. When an entity spends money, it creates income for the recipient, who then spends a portion of that income, thereby generating further income for others in the economy. This chain reaction continues, with each round of spending resulting in additional income and consumption.

As a result, the primary effect of the multiplier is a chain reaction of increased consumer spending, which amplifies the impact of the initial expenditure. For example, when the government invests in infrastructure, workers get paid, and their increased income boosts local businesses and services, leading to further spending and economic growth. This illustrates how interconnected the economy is and how one change can significantly affect overall economic output.