A $1 increase in autonomous spending has a multiplier effect greater than one on total expenditures and output because
A)each expenditure is respent in the same amount continuously.
B)overtime expenditures tend to increase.
C)total expenditures include autonomous expenditures.
D)each time an expenditure occurs the recipient respends a proportion of the funds.

Question

Quizplus · Accepted Answer

When an autonomous expenditure occurs, the recipient of the spending is likely to spend a proportion of those funds on other goods and services. This, in turn, results in additional economic activity, leading to a multiplier effect. The multiplier effect can continue, and each time the funds are respent, the effect is greater than one. Therefore, option D is the correct choice.

A $1 Increase in Autonomous Spending Has a Multiplier Effect