Question

Using the concept of social distancing, explain how the multiplier works in an economy

Answer 1

Answer) Social distancing is a concept and tool which is being used worldwide to fight the pandemic of Coronavirus at this period of time,why social distancing is useful is that this virus spreads very quickly and without social distancing,it will multiply very fast,so if 10 people gets it and they come in contact with 10 people each,it will spread to 100 and there is a possibility of virus spreading exponentially because of a multiplier factor,now consider the same case with economy,if a package is provided or a decision is taken where interest rate decreases,it will not be limited to that amount only,people spending more owing to low interest rates,which will lead to more money for businesses,more spending power for its employees who will again spend in the market and the initial money which was there will now further increase,this cycle will continue with diminishing rate but the initial package or money spend will get doubled or tripled showcasing a multiplier effect,so this power of multiplier effect is what drives Governments to announce booster packages which leads to great response from general population and markets as well.

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