Question

Mary's construction company receives a lucrative contract to build car ports on a U.S. Air force base. To celebrate she purchases a new sports car. The salesman of the car feels happy about his big sale and celebrates by going to the ballet with a date. A ballerino pays his rent. A landlord hires a plumber to install new toilets. In this scenario what macroeconomic process is being described?

Answer 1

Multiplier effect

Step-by-step explanation:

Multiplier effect refers to increase in final income as a result of an injection of spending into the circular flow of income.

It refers to how demand triggers further spending.

In this question, we see how as a result of marys contract, income flows down to the plumber.

The size of the multiplier depends on the marginal propensity to consume. The greater the marginal propensity to consume, the greater the multiplier effect.

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