Multiplier Effect

I learned about the Multiplier Effect while a student. I have never understood how it works at the most micro level. I understand that injecting dollars into the system will result in multiplying the original injection by X, and X will vary based on how many times the money changes hands and is active in the economy. But I have never understood at the most basic level, how if Jeff gives $1 to Steve for corn, and then Steve gives $1 to Mike for a potato, how did it turn into $1.02. Is it somehow being coupled with unused money currently in the Economy

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  • Leland Shumway
    published this page in Ask Prof. Wolff 2016-10-19 13:35:04 -0400