The multiplier effect means that:
A)consumption is typically several times larger than withdrawals
B)an increase in consumption can result in a larger increase in government purchases
C)an increase in spending can cause aggregate demand to change by a larger amount
D)a small decline in MPC can cause aggregate demand to rise by several times that amount
E)an increase in consumption leads to a larger increase in investment

Question

Quizplus · Accepted Answer

The multiplier effect refers to the potential for an initial increase in spending to result in a larger increase in overall demand. This is because each time money is spent, it can have a ripple effect throughout the economy, as the recipients of that money then spend it themselves, creating more demand. This can lead to a larger overall increase in demand than the initial spending increase.

The Multiplier Effect Means That