The multiplier effect exists because a change in autonomous expenditure
A) will undergo its complete effect in one round.
B) prompts further exports.
C) leads to changes in income, which generate further spending.
D) leaves the economy in the form of imports.

Question

Quizplus · Accepted Answer

The multiplier effect happens because a change in autonomous expenditure leads to changes in income, which generate further spending. This is because the initial change in expenditure causes a chain reaction of spending throughout the economy as the recipients of the initial spending continue to spend the additional income they receive, and so on. Therefore, choice C is the correct answer. Choices A, B, and D are incorrect because they do not directly explain the mechanism behind the multiplier effect.

The Multiplier Effect Exists Because a Change in Autonomous Expenditure