3. Spending, the Multiplier, and the Paradox of Thrift

In micro, one person's spending ends as that person's choice; in macro, my spending is your income. Touch the multiplier — spending and income creating each other in a loop — and the paradox of thrift, where everyone trying to save more leaves everyone saving no more.

• The Multiplier: Spending That Echoes — In micro, the link from my spending to your income stays invisible. In macro, that link is what moves the whole economy. When the government pays to build a bridge, the 🧑 workers earn income. They spend most of what they earn. That spending becomes someone else's income. So spending echoes around and grows bigger than it started. The more of each won people spend, the bigger the echo. That growth factor is the multiplier in the formula below. For example, say you spend 1,000 won on snacks at the corner 🏪 shop. The owner uses that 💰 money to buy supplies next door. The next owner spends it again somewhere else. Your 1,000 won travels around the neighborhood, getting spent again and again. The neighborhood earns far more than your first 1,000 won.
• The Paradox of Thrift: When Everyone Saves, No One Does — In micro, a household that tightens its belt really does save more. In macro, when every household tightens at once, the story flips. When everyone closes their wallet, 🏪 shops sell less. When shops sell less, 🧑 workers earn less. And when income falls, there is less 💰 money left to save. The plan to save ends up blocking saving itself. What is true for one household turns false for all of them together. For example, say all 30 classmates stop visiting the snack bar to save their allowances. The owner earns nothing and cuts orders from the supply shop. The supply shop struggles too. The classmates filled their 🐷 piggy banks, but the neighborhood as a whole saved no more than before.