2. What is the Multiplier Effect? Essentially, it is what happens to every dollar you spend after you spend it. Say you buy an $800. coat at the Main Street Coat Store in River City, Kansachusetts.
3. What does the owner of the Main Street Coat Store do with the $800 he made selling the coat? The owner of the Main Street Coat Store sends $400 to the River City Mfg. Company to pay the wholesale price of the coat . Then, he goes next door to the Main Street Suite Store to buy a $400 suit.
4. What does the owner of the Main Street Suit Store do with the $400 he made selling the suit? The owner of the Main Street Suit Store sends $200 to the River City Mfg. Company to pay the wholesale cost of the suit. Then, he goes next door to the Main Street Jacket Store to buy a $200 jacket.
5. What does the owner of the Main Street Jacket Store do with the $200 he made selling the jacket? The owner of the Main Street Jacket Store sends $100 to the River City Mfg. Company to pay the wholesale cost of the jacket. Then, he goes next door to the Main Street Shoe Store to buy a $100 pair of shoes.
6. What does the owner of the Main Street Shoe Store do with the $100 he made selling the shoes? The owner of the Main Street Shoe Store sends $50 to the River City Mfg. Company to pay the wholesale cost of the shoes. Then, he goes next door to the Main Street Shirt Store to buy a $50 shirt.
7. What does the owner of the Main Street Shirt Store do with the $50 he made selling the shirt? The owner of the Main Street Shirt Store sends $25 to the River City Mfg. Company to pay the wholesale cost of the shirt. Then, he goes next door to the Main Street Tie Store to buy a $25 tie. (Although not necessarily this particular tie.)
8. What does the owner of the Main Street Tie Store do with the $25 he made selling the tie? The owner of the Main Street Tie Store sends $12.50 to the River City Mfg. Company to pay the wholesale cost of the tie. Then, he goes next door to the Main Street Cafe to enjoy a cappuccino venti, extra foamy.
9. 1587.50 1575 1550 1500 1400 1200 Now, let’s see what happened to that $800, shall we? 12.50 25. 50. 100. 200. 400 800. $800. Coffee Shop Tie Store Shirt Store Shoe Store Jacket Store Suit Store Coat Store You The $800 spent in the coat store becomes $400 spent in the suite store which becomes $200 spent in the jacket store, and so on down the line. The total spent on Main Street in River City, Kansachusetts is $1,587.50. Not bad for an $800. purchase Main Street, River City, Kansachusetts
10. But wait, there’s more! Remember the River City Clothing & Mfg. Company? Remember the money they made on the wholesale price of the clothes? That adds up to a fairly respectable $787.50. And the people who work at the River City Clothing & Mfg. Company WILL BE SPENDING THEIR MONEY ON MAIN STREET! 787.50 775. 750. 700. 600. 12.50 25. 50. 100. 200. 400. The River City Clothing & Mfg. Company
11. The Illustrated Effect of the Multiplier Effect Shows: The $800. become $2,362.50 in our Main Street Economy Now, this is not an explanation of the multiplier effect. This is an illustration of the multiplier effect. It is analogous to a new building going up in the city and the architect who designed the building publishing an artist’s rendering of the new building in the paper, rather than publishing the blue prints. This was a picture!
