Because of the multiplier, a one-time change in expenditure will
A) have little secondary effect on real GDP.
B) expand real GDP by an infinite amount.
C) generate more additional real GDP than the initial change in expenditure.
D) decrease saving and investment activity and thereby decrease future real GDP.

Question

Quizplus · Accepted Answer

The multiplier effect in economics refers to the phenomenon where an initial change in spending (such as an increase in investment or consumption) leads to a larger change in national income and output. This happens because the initial spending creates income for others, who then spend a portion of that income, creating further income for others, and so on. This chain of spending and re-spending amplifies the impact of the initial change in expenditure, leading to more additional real GDP than the initial change.

Because of the Multiplier, a One-Time Change in Expenditure Will