Consider the simplest macro model with demand-determined output.Other things being equal,the ________ the value of the simple multiplier,the ________ stable is real GDP in response to shocks to autonomous spending.
A)larger; more
B)larger; less
C)smaller; more
D)smaller; less
E)both B and C are correct

Question

Quizplus · Accepted Answer

The simple multiplier amplifies changes in autonomous spending, so a larger multiplier means real GDP is more sensitive (less stable) to spending shocks, while a smaller multiplier means GDP is less sensitive (more stable). Thus, both B and C are correct.

Consider the Simplest Macro Model with Demand-Determined Output