A couple visits Orlando and has dinner at the A Land Remembered restaurant at Rosen Shingle Creek Resort. They spend $100 and leave a nice 20% tip for the waitperson. The waitperson gets the tip added to his/her weekly wage, which s/he uses to pay his/her rent, food, and transportation expenses. The restaurant owner uses part of the $100 to purchase supplies; pay utilities, insurance, and taxes; and covers part of his/her payroll. The food vendor pays his/her suppliers and employees, and on and on this goes. What is this process called

Multiplier effect

Explanation:

Multiplier effect is an economic term for a phenomenon where increased spending results in increase in national spending and consumption that is greater than the initial amount spent.

It is when an increase in an economic factor causes an increase in many other economic variables.

In the given scenario the couple spend $100 and leave a nice 20% tip for the waitperson. The waitperson gets the tip added to his/her weekly wage, which s/he uses to pay his/her rent, food, and transportation expenses. The restaurant owner uses part of the $100 to purchase supplies; pay utilities, insurance, and taxes; and covers part of his/her payroll. The vendor also pays his suppliers.

This extended effect of the $100 spent on other economic variables is called the multiplier effect.

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