The multiplier effect means that aggregate demand curve will shift by a larger amount than the increase in _____________.
A) consumer spending.
B) budget revenues.
C) government spending.
D) the aggregate supply.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the concept that an increase in government spending will lead to a greater increase in total spending in the economy, because the initial spending leads to further rounds of spending by recipients, creating a ripple effect. Therefore, the aggregate demand curve will shift by a larger amount than the increase in government spending.

The Multiplier Effect Means That Aggregate Demand Curve Will Shift