The multiplier effect occurs because

Question

Quizplus · Accepted Answer

The multiplier effect occurs when an autonomous change (such as an increase in government spending or investment) results in an increase in consumption expenditure through a chain reaction of increased income and spending. This effect is based on the idea that each dollar spent by one person becomes income for another person, who in turn spends that income, and so on. This leads to a total increase in economic activity that is greater than the initial amount of the autonomous change. The other choices do not accurately describe the multiplier effect.

The Multiplier Effect Occurs Because