The multiplier effect shows that a change in aggregate spending
A) causes output to move in the opposite direction.
B) causes output to change even more than the change in aggregate spending.
C) causes output to change by less than the change in aggregate spending.
D) leaves output unaffected.

Question

Quizplus · Accepted Answer

The multiplier effect shows that a change in aggregate spending causes output to change even more than the change in aggregate spending. This is because an initial increase in spending leads to a series of subsequent rounds of spending as the recipients of the initial spending also spend their additional income. This process results in an exponential increase in output compared to the initial increase in spending.

The Multiplier Effect Shows That a Change in Aggregate Spending