Ceteris paribus, the multiplier effect would be largest in which situation?
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

The multiplier effect is largest when prices are fixed because changes in spending lead to changes in output without being offset by changes in prices, allowing the initial increase in spending to have a more pronounced effect on the economy.

Ceteris Paribus, the Multiplier Effect Would Be Largest in Which