The multiplier effect magnifies the effect of a decrease in spending, resulting in a bigger decrease in real GDP.

Name: The multiplier effect magnifies the effect of a decrease in spending, resulting in a bigger decrease in real GDP.
Brand: Quizplus
Rating: 4.7 (33 reviews)

Question

Quizplus · Accepted Answer

The multiplier effect amplifies changes in spending, so a decrease in spending leads to a larger decrease in real GDP as the initial reduction in spending causes further reductions in income and consumption.

The Multiplier Effect Magnifies the Effect of a Decrease in Spending