The practical significance of the multiplier is that it:
A)brings about an equality of planned investment and saving.
B)magnifies relatively small initial changes in spending into larger changes in GDP.
C)keeps inflation within tolerable limits.
D)helps to stabilize the economy.

Question

Quizplus · Accepted Answer

The multiplier effect magnifies the impact of changes in spending on GDP. For example, an initial increase in spending by businesses or consumers can lead to more spending by other businesses and consumers, creating a chain reaction that ultimately results in a larger increase in GDP than the initial spending increase. This makes the multiplier valuable in fiscal policy since relatively small changes in government spending or taxation can have a significant impact on the overall economy.

The Practical Significance of the Multiplier Is That It