The expenditure multiplier is larger than one because
A)an increase in autonomous expenditure induces further decreases in aggregate expenditure.
B)additional expenditure induces lower incomes.
C)an increase in autonomous expenditure induces further increases in aggregate expenditure.
D)the price level rises, thereby reinforcing the initial effect.
E)an increase in autonomous expenditure brings about a reduction in the real interest rate.

Question

Quizplus · Accepted Answer

An increase in autonomous expenditure leads to a chain reaction of increased consumption and investment, which further increases aggregate expenditure, making the multiplier larger than one.

The Expenditure Multiplier Is Larger Than One Because