Which of the following is not an assumption of the simple multiplier formula?
A)The economy has excess capacity and room to expand output.
B)Firms will raise prices as buyers buy more of their output.
C)People will spend more if they earn additional income.
D)Business firms will increase production if demand for their output increases.

Question

Quizplus · Accepted Answer

The simple multiplier formula assumes that prices remain constant as output increases, meaning firms do not raise prices when demand increases.

Which of the Following Is Not an Assumption of the Simple