The oversimplified formula for the multiplier is misleading because it ignores the effects of
A)price-level changes.
B)the foreign sector.
C)variable taxes.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The oversimplified formula for the multiplier only takes into account the initial injection of government spending or investment and assumes that all subsequent spending is spent domestically, at the same price level, and doesn't account for any changes in taxes. In reality, the multiplier effect can be influenced by changes in the price level, the foreign sector (such as imports and exports), and variable taxes. Therefore, all of the above choices are correct.

The Oversimplified Formula for the Multiplier Is Misleading Because It