Suppose that in a particular economy, the multiplier is equal to 5. In terms of aggregate demand and aggregate supply, this value for the multiplier means that after an increase in investment

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Quizplus · Accepted Answer

The multiplier effect refers to the impact of changes in investment (or any other component of aggregate demand) on equilibrium output. If the multiplier is equal to 5, this means that a $1 increase in investment will lead to a $5 increase in output. This occurs because the initial increase in investment will lead to an increase in income and consumption, which in turn will lead to further increases in production and income. The result is a rightward shift in the aggregate demand curve by an amount equal to 5 times the initial increase in investment, at each price level. Therefore, choice B is the correct answer.

Suppose That in a Particular Economy, the Multiplier Is Equal