The multiplier effect on real GDP occurs because
A) changes in price levels affect our willingness to invest, consume, import and export.
B) an autonomous change in expenditure causes an induced change in consumption expenditure.
C) of government stabilization policies.
D) of income taxes.

Question

Quizplus · Accepted Answer

The multiplier effect on real GDP occurs because an autonomous change in expenditure (such as investment, government spending, or exports) leads to further induced changes in consumption expenditure. This is because the initial expenditure increases income for some people, who then spend part of this additional income, thereby increasing the income of others, and so on, leading to a multiplied total increase in real GDP.

The Multiplier Effect on Real GDP Occurs Because