The multiplier:
A)increases unplanned inventory stocks in the economy.
B)creates additional government expenditure expenses.
C)minimizes the impact of a change in spending on GDP.
D)causes a ripple effect of an increase in spending on GDP.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the ripple effect of an increase in spending on GDP. When there is an increase in spending, it leads to an increase in income and consumption, which further leads to an increase in spending and GDP. Therefore, the correct choice is D. The other choices, A, B, and C, are incorrect as the multiplier does not increase unplanned inventory stocks, create additional government expenditure expenses, or minimize the impact of a change in spending on GDP.

The Multiplier