Question

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Answer 1

the multiplier effect

Step-by-step explanation:

A multiplier effect can be defined as an increase in income as a result of increased spending. With multiplier effect, goods and services demands increase due to an increase in income of individuals.

For companies, multiplier effect means that an increase in spending means that there will be an increase in good and services demand as well as the incomes of individuals.

From the above question, the government's spending to build a new treatment plant has caused the owner of the plant to pay her workers more and also made the workers to increase their spending.

Cheers.