Because a decrease in real autonomous spending results in a ________ in the price level, the ultimate effect on real GDP is ________ than predicted by the multiplier.
A) fall; smaller
B) fall; larger
C) rise; smaller
D) fall, smaller

Question

Quizplus · Accepted Answer

When there is a decrease in real autonomous spending, it results in a fall in the price level. As the price level falls, the aggregate demand curve shifts downward, and the equilibrium GDP decreases. This leads to a smaller effect on real GDP than predicted by the multiplier. Hence, Option A is the correct choice.

Because a Decrease in Real Autonomous Spending Results in a ________