The multiplier effect
A) increases the MPC.
B) generates instability in autonomous expenditure.
C) magnifies small changes in spending into larger changes in real GDP.
D) promotes stability of the general price level.

Question

Quizplus · Accepted Answer

The multiplier effect magnifies small changes in spending into larger changes in real GDP. This is because an initial injection of spending leads to increased income, which in turn increases consumption and further increases income. This cycle repeats until the increase in spending is multiplied into a larger increase in real GDP. The multiplier effect is a key concept in macroeconomics and is used to analyze the impact of changes in government spending or investment on the economy.

The Multiplier Effect