Money goes round and round, as businesses and households purchase goods and services, and as households receive payments for labor and investments and, in turn, purchase more goods and services.
Economic life cycle accounting keeps track of these transactions back through the supply chain, and forward through the spending of income. These ripple effects multiply the impact that a business, industry, government, or household has on the local, state, and world economy beyond just the direct effect. For example, a business may employ fifty people, but purchase goods and services from other businesses, accounting for a ripple effect of another eight employees back through the supply chain.
The following graphics illustrate the round-by-round ripple effects that multiply the direct impact of any business or household. Money keeps circulating as businesses purchase from other businesses back through the supply chain, and households spend income on goods and services. Each of these transactions generate additional rounds of activity - some local, some not. When summed up through all the rounds of activity, the result in this example is that for each dollar of output produced initially, 0.95 dollars of value added is generated locally. And 10.7 local jobs are supported for each million dollars in initial output.
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