Keynes’ Multiplier Effect

Keynes’ Multiplier Effect is an economic concept that describes how an initial increase in spending can lead to a larger overall increase in economic activity. For example, if the government spends money on building a bridge, the construction workers get paid, and they may spend their wages on local businesses. These businesses, in turn, can hire more staff or purchase more goods. The original spending creates a ripple effect, boosting income and expenditure throughout the economy, thus multiplying the impact of the initial investment. Essentially, every dollar spent can generate more than a dollar in economic output.