Question

The government spends billions to develop a new vaccine. Scientists get paid. Firms that sell goods and services to the scientists increase their output and pay more wages. This spending stream causes the

		the Money Multiplier
		the spending multiplier.
		the crowding-out effect.
		the domino effect

Answer 1

It is spending multiplier.

Increase in government spending has a multiplier effect in which initial increase in income helps in increasing the consumption by several individuals which in the next few rounds increases income and consumptio again and again. It is not money multiplier because there is no change in money supply. It is not a crowding out because there is no reduction in private investment. It is not a Domino effect in which failure of one bank causes the failure of several other banks