When you throw your rubber ducky into the bath (not judging), it creates a ripple effect on the surface of the water, affecting the whole bath. Okay, now turn that water into money and turn the ducky into a transaction, and you’re well on your way to understanding the multiplier effect.
In economics, the multiplier effect describes the process where an economic transaction in one place can result in a ripple effect of more economic transactions elsewhere in the economy. To understand the multiplier effect, all you need to do is...follow the dollars.
For instance, a boost in rubber ducky sales would give all the rubber ducky employees more money, some of which they would go out and spend...maybe some on rent and utilities, but maybe some on movies and a nice duck dinner out on the town. A rubber ducky sales boost would also give a monetary boost to the rubber industry, and to all of the rubber industry workers and CEOs, who would then spend some of that money.
You can keep following the dollars outward, changing from one hand to another to another. Every time money is spent, it creates new income for the money receiver. This still happens when you throw a bank into the mix, as banks lend out money, some of which gets spent and some eventually saved into another bank, who lends out that money, and the rippling effect keeps going.
This is basically the economy. Which is why spending = good for the economy. More spending in one place ripples out to spending in other places, keeping the cogs of the economy grinding away.