An example of the multiplier effect is when
A) the government increases government spending initially by $100 billion,and total income in the economy increases by less than $100 billion.
B) an increase in the price level leads to a shift in the aggregate demand curve.
C) the government increases government spending initially by $100 billion,and total income in the economy increases by more than $100 billion.
D) an increase in government spending leads to a decrease in private investment.
E) short-run aggregate supply shifts in a response to fiscal policy.

Question

Quizplus · Accepted Answer

The multiplier effect is the phenomenon in which an initial increase in spending or investment leads to a larger increase in total income in the economy. When the government increases government spending initially by $100 billion, and total income in the economy increases by more than $100 billion, it is an example of the multiplier effect. This is because the additional government spending creates new income for firms and individuals, who in turn spend some of this income on additional goods and services, leading to further increases in economic activity and income.

An Example of the Multiplier Effect Is When