PRC-3 · Chapter 15 · Question 9 of 44
The government spends Rs. 100 million building a hospital. The construction workers spend 80% of their new wages on food and clothes. The shopkeepers then spend 80% of that money on goods. This chain reaction resulting in a massive final boost to National Income is called:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The Keynesian Investment Multiplier
Explanation
The multiplier effect demonstrates how an initial injection of spending (like building a hospital) circulates through the economy, creating multiple rounds of income and a magnified final impact.
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