PRC-3 · Chapter 15 · Question 1 of 44
The government injects Rs. 100 million into building new roads. Because the construction workers spend their new wages at local shops, and shop owners then spend that money elsewhere, the final increase in National Income is Rs. 400 million. This magnified effect is known as:
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 spending (like investment or government spending) leads to a much greater, multiplied increase in final national income.
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