Which of the following is an example of the multiplier at work as a result of an increase in consumption expenditures?
A)Consumers compete with the government by increasing their expenditures,causing businesses to increase their investments to satisfy the increased demand.
B)Consumption expenditures increase inflation,which reduces real incomes;consumer expenditures and investment decline,which reduces aggregate spending.
C)Households and businesses receive income from consumption expenditures;they spend a portion of this new income;these expenditures,in turn,generate income for other businesses and households,which in turn spend a portion of the new income,and so on.
D)Consumption expenditures stimulate investment in new plants and equipment to produce goods and services for the government, which provides fewer jobs and decreases incomes.

Question

Quizplus · Accepted Answer

This choice describes the multiplier effect in action, where an increase in consumption expenditures leads to new income which is then spent by others, generating yet more income and spending. This process multiplies the initial impact of the spending increase. The other choices do not accurately describe the multiplier effect.

Which of the Following Is an Example of the Multiplier