Which sequence correctly describes the stages of the multiplier effect?

Which sequence correctly describes the stages of the multiplier effect?

• A. Investment in infrastructure is a prerequisite for growth.
• B. A rise in consumer prices automatically boosts jobs.
• C. New jobs → spending increases → more services open → more jobs created → higher tax revenues.
• D. Government debt directly funds all services.

Answer: (C)

The multiplier effect is about how an initial rise in spending or income creates a ripple of additional spending and income in the economy. It starts with more people working or earning more, which then leads to higher spending. This sequence fits best because when new jobs are created, households have more income. With this extra income, people spend more, boosting demand for goods and services. The higher demand encourages more production and the opening of more services to meet it, which in turn creates even more jobs. As overall income and activity rise, tax revenues also increase. This describes the circular flow: jobs → more spending → more business activity → more jobs → higher taxes. The other options don’t show this looping chain. One talks about infrastructure as a prerequisite, which isn’t the ongoing, repeatable cycle of the multiplier. Another says inflation automatically boosts jobs, which isn’t a guaranteed or mechanism-driven sequence. The last option implies debt funds all services directly, which misrepresents how the multiplier works and how government finance operates.

The multiplier effect is about how an initial rise in spending or income creates a ripple of additional spending and income in the economy. It starts with more people working or earning more, which then leads to higher spending.

This sequence fits best because when new jobs are created, households have more income. With this extra income, people spend more, boosting demand for goods and services. The higher demand encourages more production and the opening of more services to meet it, which in turn creates even more jobs. As overall income and activity rise, tax revenues also increase. This describes the circular flow: jobs → more spending → more business activity → more jobs → higher taxes.

The other options don’t show this looping chain. One talks about infrastructure as a prerequisite, which isn’t the ongoing, repeatable cycle of the multiplier. Another says inflation automatically boosts jobs, which isn’t a guaranteed or mechanism-driven sequence. The last option implies debt funds all services directly, which misrepresents how the multiplier works and how government finance operates.