Which of the following is a true statement about the multiplier?
A)The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation, and the interest rate.
B)The larger the MPC, the smaller the multiplier.
C)The multiplier is the ratio of the change in spending to the change in GDP.
D)The multiplier makes the economy less sensitive to changes in autonomous expenditure.
E)The multiplier only applies to changes in government spending.

Question

Quizplus · Accepted Answer

The multiplier is affected by various factors, including imports, inflation, and interest rates, which can reduce its effectiveness in the real world compared to the theoretical model. The larger the marginal propensity to consume (MPC), the larger the multiplier, not smaller. The multiplier is actually the ratio of the change in GDP to the change in spending, not the other way around. It makes the economy more sensitive to changes in autonomous expenditure, not less. Lastly, the multiplier applies to any form of autonomous spending, not just government spending.

Which of the Following Is a True Statement About the Multiplier