In “The Moneygoround”, The Kinks are singing about how their money keeps getting split up and re-spent before it reaches them. The band, naturally, does not sound happy about this occurring, but we should be happy that this song is a great introduction to the multiplier effect.
The amount of final income from a new injection of spending is more than the initial injection. The amount of total income that is created is related to the marginal propensity to consume and the formula is 1/(1-marginal propensity to consume).
For example, if $100 is added to an economy and each person spends 50% of the money received (which means 50% is saved), the total increase in income is $100*1/(1-0.5) = $200.
Discussion Questions for “The Moneygoround”