Within the Keynesian model, the multiplier effect tends to
A) smooth out the up- and down- swings of the business cycle.
B) promote price stability.
C) magnify small changes in spending into much larger changes in output and employment.
D) reduce the impact of an increase in investment on output and employment.

Question

Quizplus · Accepted Answer

The multiplier effect refers to how an initial change in spending (such as an increase in government spending or investment) can lead to much larger changes in output and employment. This is because the initial spending creates a chain reaction of more spending by those who receive the income from the initial spending, leading to even more spending and so on. This magnifies the impact of the initial spending on the overall economy, and can be a powerful tool in smoothing out the business cycle and promoting economic growth.

Within the Keynesian Model, the Multiplier Effect Tends to