The multiplier effect states that there are additional shifts in aggregate demand from expansionary fiscal policy, because it
A)reduces investment and thereby increases consumer spending.
B)increases the money supply and thereby reduces interest rates.
C)increases income and thereby increases consumer spending.
D)decreases income and thereby increases consumer spending.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the phenomenon where an initial increase in spending (such as through expansionary fiscal policy) leads to additional increases in income and hence consumer spending, further boosting aggregate demand. This cycle continues with diminishing effects, but overall, it amplifies the initial increase in spending.

The Multiplier Effect States That There Are Additional Shifts in Aggregate