What is the ''Multiplier effect?

The multiplier effect refers to the phenomenon where an initial increase in spending leads to a greater overall increase in economic activity. For example, when the government invests in infrastructure, it creates jobs and income for workers, who then spend that income on goods and services, further stimulating the economy. The extent of the multiplier effect depends on factors such as the marginal propensity to consume and the overall economic environment. Essentially, it illustrates how initial investments can have a cascading impact on economic growth.