In the long run, the multiplier
A)has a larger effect on real GDP than it has in the short run, because the multiplier effect has a longer time period to exert its impact on the economy.
B)has a smaller effect on real GDP than it has in the short run because of changes in the price level.
C)can have a smaller or larger effect on real GDP than it has in the short run.
D)has a larger effect on real GDP than it has in the short run because of changes in the price level.
E)has a larger effect on real GDP than it has in the short run, because there are more induced expenditures in the long run.

Question

Quizplus · Accepted Answer

In the long run, the multiplier has a smaller effect on real GDP than in the short run because price levels adjust in the long run, which can dampen the initial impact of a change in spending.

In the Long Run, the Multiplier