Advanced Placement (AP) Human Geography 2025 – 400 Free Practice Questions to Pass the Exam

The multiplier effect in economics refers to the concept that an initial investment, such as spending on new infrastructure or a new business, leads to increased income and consumption within a local economy. This effect stems from the idea that when a basic job (often associated with industries that export goods and services outside of the local economy) is created, it leads to additional jobs in non-basic sectors as demand for local services and goods rises.

Investments in the local economy create income not only for those directly employed in basic industries but also for those in surrounding industries that benefit from the increased demand. As jobs are created, workers will spend their earnings on various goods and services, stimulating further economic activity and leading to an overall increase in employment opportunities within the community. Thus, this investment generates a ripple effect that multiplies the initial impact.

The other options do not accurately capture this economic principle. The overall reduction in job opportunities does not relate to the multiplier effect, nor does the ratio of basic jobs to overall employment reflect the dynamics of economic stimulation through investment. While the effect of investment on local economic growth is related to the concept, the specific term "multiplier effect" encapsulates the idea of additional jobs created as a consequence of that investment, which aligns with the first