The notion that when the government increases its purchases of aeroplanes, the owners and employees of the aeroplane manufacturing companies will also purchase more as their incomes rise, and hence total purchases will increase by more than the initial change in government purchases, is known as the:
A)crowding-out effect
B)Keynesian effect
C)multiplier effect
D)acceleration effect

Question

Quizplus · Accepted Answer

The scenario described is an example of the multiplier effect, which suggests that a change in autonomous spending (like government purchases) can have a larger impact on a country's total output and income due to the resulting increase in spending by those who receive the increased income.

The Notion That When the Government Increases Its Purchases of Aeroplanes