The multiplier effect suggests that:
A) given a change in autonomous spending, equilibrium income will rise by an amount equal to the change in autonomous spending.
B) a given change in total spending will change saving by an amount equal to the MPS times the change in total spending.
C) given a change in induced spending, investment spending will change by some multiple of the change in induced spending.
D) given a change in autonomous spending, equilibrium income will change by a multiple of the initial . change in autonomous spending.

Question

Quizplus · Accepted Answer

The multiplier effect in economics refers to the phenomenon where an initial change in spending (such as an increase in autonomous spending, which is spending that does not depend on income levels) leads to a larger change in equilibrium income. This happens because the initial spending increase causes income to rise for some parties, who then spend more, leading to further increases in income and spending in a virtuous cycle. The size of the multiplier effect depends on the marginal propensity to consume (MPC) or save (MPS), with a higher MPC leading to a larger multiplier effect.

The Multiplier Effect Suggests That