If the multiplier is greater than 1 an initial (autonomous)decrease in aggregate demand will be
A)Much smaller than the eventual decline in spending.
B)Much larger than the eventual decline in spending.
C)Equal to the eventual decline in spending.
D)Offset by an increase in planned investment.

Question

Quizplus · Accepted Answer

When the multiplier is greater than 1, an initial decrease in aggregate demand leads to a series of reductions in spending that are cumulatively larger than the initial decrease. This is because each round of decreased spending leads to further decreases in income and consumption, amplifying the initial shock.

If the Multiplier Is Greater Than 1 an Initial (Autonomous)decrease