The reason why inflation reduces the value of the multiplier is that part of the change in demand is
A)absorbed by price changes.
B)saved rather than spent.
C)matched by changes in supply.
D)matched by changes in income.

Question

Quizplus · Accepted Answer

Inflation leads to price changes, which means that a portion of the change in demand is absorbed by these price changes rather than resulting in a corresponding increase in output or spending. This, in turn, reduces the value of the multiplier as the impact of changes in demand on output and spending is not as significant as it would be in a situation without inflation.

The Reason Why Inflation Reduces the Value of the Multiplier