Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It decreases overall economic output.
B
It has no impact on economic output.
C
It increases overall economic output by a multiple of the initial spending.
D
It only affects the immediate sector in which it is applied.
Understanding the Answer
Let's break down why this is correct
Answer
The spending multiplier is a concept that explains how government spending can lead to a larger overall increase in economic activity. When the government spends money, such as on building a new highway, it pays workers and contractors. These workers then have more money to spend on goods and services, which helps local businesses. As those businesses earn more, they may hire more employees or buy more supplies, creating a cycle of economic growth. For example, if the government spends $1 million on a project, it could lead to a total increase in the economy of $3 million or more, depending on how much of that money circulates through different parts of the economy.
Detailed Explanation
When the government spends money, it helps the economy grow. Other options are incorrect because Some might think that spending less helps the economy; It's a common belief that spending has no effect.
Key Concepts
fiscal policy
Topic
Spending and Tax Multipliers
Difficulty
easy level question
Cognitive Level
understand
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