Rising prices in the economy tend to
A) increase the size of the multiplier
B) decrease the size of the multiplier
C) not change the size of the multiplier
D) have an unknown effect on the size of the multiplier

Question

Quizplus · Accepted Answer

Rising prices in the economy can lead to a decrease in the size of the multiplier because as prices increase, the real value of money decreases, leading to a reduction in consumer spending and investment. This, in turn, reduces the overall impact of an initial increase in spending on the total economic output, thus decreasing the multiplier effect.

Rising Prices in the Economy Tend to