All of the following are true statements about the multiplier except:
A)The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports,inflation and the interest rate.
B)The larger the MPC,the larger the multiplier.
C)The multiplier is the ratio of the change in real GDP to the change in autonomous expenditure.
D)The multiplier makes the economy less sensitive to changes in autonomous expenditure.

Question

Quizplus · Accepted Answer

The statement "The multiplier makes the economy less sensitive to changes in autonomous expenditure" is incorrect. The purpose of the multiplier is to show how changes in autonomous expenditure (such as government spending or investment) can lead to larger changes in overall GDP. Therefore, the multiplier actually makes the economy more sensitive to changes in autonomous expenditure. Choices A, B, and C are all true statements about the multiplier.

All of the Following Are True Statements About the Multiplier