A change in autonomous spending leads to a greater change in Real GDP through the multiplier process.

Question

Quizplus · Accepted Answer

The multiplier effect shows that changes in autonomous spending, such as government spending or investment, can lead to larger changes in Real GDP. This is because the initial change in spending leads to increased income and consumption, which in turn leads to even greater increases in income and consumption through the economy. The size of the multiplier depends on the marginal propensity to consume (MPC), which measures how much of each additional dollar of income is spent on consumption.

A Change in Autonomous Spending Leads to a Greater Change