Political Economy Keynesian Economics Questions
The multiplier effect in Keynesian Economics refers to the concept that an initial increase in government spending or investment can lead to a larger overall increase in national income and economic output. According to Keynesian theory, when the government increases its spending, it stimulates demand and encourages businesses to produce more goods and services. This increased production leads to higher incomes for workers, who in turn spend more, creating a cycle of increased spending and economic growth. The multiplier effect occurs because the initial increase in government spending has a ripple effect throughout the economy, resulting in a larger overall impact on output and income.