PRC-3 · Chapter 15 · Question 20 of 44
The government injects Rs. 1 billion to build a dam. The workers spend 80% of their wages, shopkeepers spend 80% of their new profits, creating a chain reaction. The final increase in National Income is Rs. 5 billion. This phenomenon is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The Keynesian Investment Multiplier
Explanation
The multiplier effect occurs when an initial injection of autonomous spending leads to a much larger, magnified final increase in national income.
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