Which effect tends to make aggregate demand decrease by more than the amount that consumer spending decreases?
A) crowding-out
B) multiplier
C) wealth
D) interest rate

Question

Quizplus · Accepted Answer

The multiplier effect happens when a change in a component of aggregate demand (such as consumer spending) leads to a larger change in total output and income. The reason is that changes in consumer spending can have a ripple effect on other components of aggregate demand, such as investment, government spending, and net exports. Therefore, a decrease in consumer spending can lead to a larger decrease in aggregate demand due to the multiplier effect.

Which Effect Tends to Make Aggregate Demand Decrease by More