Multi color yarn is very fashionable these days. You can make multi color yarn out of plastic bags using the following steps:
Cut off the handles and the bottom seam, and set aside for later use. Cut the bag in 1" strips along its width. You will now have about 10 to 15 loops of plastic
Continue cutting different bags of several different colors. 4 or 5 colors work best in my opinion. Mix all the strips lightly as if tossing a salad
Tie all the strips together. I like to tie colors randomly instead of using a color pattern. Experiment with different colors and see what works best for you.
Since you will have a lot of knots, you will need to trim the excess plastic when all your knitting is done.