The multiplier effect suggests that:
A) a ripple effect occurs from one person's initial spending.
B) spending $1 will create more than a $1 increase in GDP.
C) a tax cut will increase GDP by more than the amount of the initial tax cut.
D) All of these are true.

Question

Quizplus · Accepted Answer

All of these statements are true. The multiplier effect refers to the idea that an initial increase in spending can have a ripple effect throughout the economy, leading to increased levels of economic activity and ultimately increasing GDP by more than the initial amount spent. Similarly, a tax cut can have a similar effect by providing individuals with more disposable income, which they can then spend, leading to increased economic activity and higher GDP levels.

The Multiplier Effect Suggests That