The multiplier effect on real GDP occurs because
A) of income taxes.
B) an autonomous change in expenditure causes an induced change in consumption expenditure.
C) of government stabilization policies.
D) changes in price levels affect our willingness to invest, consume, import and export.

Question

Quizplus · Accepted Answer

The multiplier effect is caused by an autonomous change in expenditure (such as government spending or investment) which then causes an induced change in consumption expenditure. This leads to further rounds of increased consumption, creating a ripple effect throughout the economy and ultimately leading to a larger overall increase in real GDP. Income taxes, government stabilization policies, and changes in price levels may impact the economy in other ways, but they are not direct causes of the multiplier effect on real GDP.

The Multiplier Effect on Real GDP Occurs Because