The multiplier effect
A) has no effect if the cyclical deficit is positive.
B) increases the MPC.
C) is nonexistent in the Keynesian model.
D) magnifies small changes in spending into larger changes in output and income.

Question

Quizplus · Accepted Answer

The multiplier effect refers to how small changes in spending can have a larger impact on output and income in an economy. It magnifies the initial spending increase into a larger boost to aggregate demand, which can lead to further increases in output and income through a chain reaction of spending. Therefore, the correct answer is D - the multiplier effect magnifies small changes in spending into larger changes in output and income.

The Multiplier Effect