According to the multiplier effect, a rise in new expenditures (exports, government spending, or investment) may result in a larger rise in final national income (GDP).

Due to the fact that a portion of the increased expenditure will be spent, other businesses and individuals will benefit. Businesses and individuals will also spend a portion of their earnings, generating earnings for others. The process continues until additional money is no longer available.

The multiplier effect is the phenomenon where a sudden event in the economy, such as a rise in demand for goods and services, leads to increased production of those goods and services. The sudden increase in demand will lead to an increase in production and will eventually lead to increased incomes for workers, increased profits for producers, and increased tax revenues for the government. These dynamics illustrate how one event can cause a chain reaction of events that all work together to benefit the economy.

The multiplier effect is a concept in economics that describes how spending in one area of the economy can lead to increased business and job creation in other areas. This occurs when an increase in demand for one product or service leads to an increase in demand for complimentary products and services. (1) For instance, building a new house may require workers to build the house, hire landscapers, and purchase furniture.