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Multiplier Effect
The multiplier effect describes how an initial burst of spending ripples outward. A rupee spent on a new road pays a worker, who spends it at a shop, whose owner spends it elsewhere. Total economic activity rises by more than the original amount.
Why It Matters
It is the logic behind tax cuts and public investment as tools for growth.
In India
Economists estimate that government spending on infrastructure has a larger multiplier in India than handouts, because it creates both jobs now and assets that raise future output.
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