Because of the multiplier, a one-time change in expenditure will
A) have little secondary effect on real GDP.
B) generate more additional real GDP than the initial change in expenditure.
C) decrease saving and investment activity and thereby decrease future real GDP.
D) expand real GDP by an infinite amount.

Question

Quizplus · Accepted Answer

The multiplier effect means that a one-time change in expenditure will generate more additional real GDP than the initial change in expenditure, as the initial spending creates income and induces further spending. Therefore, the secondary effect on real GDP will be larger than the initial change in expenditure.

Because of the Multiplier, a One-Time Change in Expenditure Will