Inflation reduces the multiplier effect by reducing consumers' wealth and purchasing power.

Question

Quizplus · Accepted Answer

Inflation causes a decrease in the purchasing power of consumers' money which in turn reduces their overall wealth. This reduces the multiplier effect because when consumers have less purchasing power, they are less likely to spend money on goods and services, thereby decreasing demand and overall economic activity.

Inflation Reduces the Multiplier Effect by Reducing Consumers' Wealth and Purchasing