The Multiplier Effect
There is one interesting Economics theory that we should be aware of, the Multiplier Effect. I will use just a simple example to illustrate this theory. Why is it that, during an economic downturn, or difficult times like a pandemic, the government still give out aid packages to companies and to the individuals? Shouldn't they be prudent? In general, it is to help the economy to survive, reducing the number of small and medium size companies closing shop for good. But why, to the individuals? When people spend less, more people earn less from businesses. These people in turn spend less. The compound effect is bad for the economy. On the other hand, when the government gives out vouchers to the individual households, the general public is able to continue to spend on essentials. Shop and stall owners who earn these money, in turn have more cash for spending on their own necessities. And when the shop and stall owners spend, the receiver in ...