1. here is a multiplier example
How could the building of a $10 million government building have multiplier effect on the economy?
The construction workers and owners are paid $10 million for their work. Suppose the owners and workers spend $6 million of their income on new cars. To meet the increased demand for new cars, automobile producers will expand their production and earn an additional $6 million in wages and profits. They, in turn, will spend part of this additional income -let's say, $3.6 million- on televisions. The workers and owners who produce televisions will then spend part of the $3.6 million they earn, and so on, and so on.
2.Did the rescue plan crowd out private investment?
In mid-2007, on the eve of the onset of the global financial crisis, U.S. investment expenditure was running at $2.2 trillion. The government had a budget deficit of $0.2 trillion, so the quantity of loanable funds demanded and supplied was $2.4 trillion. The real interest rate at the time was 3% per year.
By mid-2009, U.S. investment expenditure had fallen to $1.5 trillion and the real interest rate had risen to 4.5% per year.
What caused the collapse of investment and the rise in the real interest rate?