Ceteris paribus, the multiplier effect would be largest in which of the following situations?
A) when prices are fixed
B) when prices are flexible
C) when the government borrows from its citizens to cover increased deficit spending
D) when the government has a balanced budget

Question

Quizplus · Accepted Answer

When prices are fixed, any increase in aggregate demand leads to a larger increase in output and income, maximizing the multiplier effect.

Ceteris Paribus, the Multiplier Effect Would Be Largest in Which