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

Question

Quizplus · Accepted Answer

The multiplier effect occurs because a change in autonomous expenditure, such as an increase in government spending or investment, leads to an initial increase in income. This increase in income then leads to additional consumer spending and further increases in income, creating a multiplier effect. Thus, the correct option is B, which states that the change in income generates further spending. The other options are not accurate: A talks about exports, which are not directly related to the multiplier effect; C is incorrect because the multiplier effect can continue for multiple rounds; and D is also incorrect because imports do not affect the multiplier effect directly.

The Multiplier Effect Exists Because a Change in Autonomous Expenditure