Which of the following describes the process whose ultimate result is illustrated by the multiplier (the result being that gross domestic product (gdp) increases by more than an initial increase in spending by individuals, firms, or the government)?
1. the multiplier exists because money spent today is always more valuable than money spent in the future due to inflation and interest rates. as such, when money te spent today, its value to the economy is a multiple of the value to the economy of money spent in the future.
2. when people spend money, that money ends up in the pockets or bank accounts of other people (or organizations) who then use that money in some way.
3. when people see other people spending money, they know that the economy is about to improve, leading them to spend more money.
4. when people see the government spending more money, they realize that the government thinks that prices are low, and thus. it is a good time to buy things.