The reason why an increase in government expenditure has a more than proportional impact on aggregate demand is known as:
A) the wealth effect.
B) the multiplier effect.
C) the interest rate effect.
D) the divider effect.

Question

Quizplus · Accepted Answer

The multiplier effect suggests that an increase in government expenditure leads to an initial increase in aggregate demand, which then leads to an increase in income, spending, and production, resulting in a more than proportional impact on aggregate demand. This occurs as the initial increase in government spending leads to increased income and spending for individuals and businesses, who in turn spend more and increase economic activity, creating a cycle of further economic growth.

The Reason Why an Increase in Government Expenditure Has a More