Because of the multiplier effect,a smaller change in government spending is needed to generate a given change in aggregate demand.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the concept that a change in autonomous expenditure (such as government spending) leads to a larger overall increase in aggregate demand. This means that a smaller change in government spending can have a bigger impact on the economy, as the spending cycles through the economy and creates additional rounds of spending and income. Therefore, a smaller change in government spending is needed to generate a given change in aggregate demand, making option A true.

Because of the Multiplier Effect,a Smaller Change in Government Spending