The Multiplier Effect in Economics

The multiplier effect in economics describes how initial spending can lead to a larger overall increase in economic activity. When someone spends money—for example, on a new building or service—it creates income for others involved, who then spend that income on their needs. This cycle continues, amplifying the original spending’s impact on the economy. Essentially, one dollar of investment or expenditure triggers multiple dollars in economic growth, multiplying the initial effect and boosting total economic output beyond the initial amount spent.