Which statement about the multiplier is correct?
A) The spending multiplier can work to increase or to decrease equilibrium GDP.
B) The spending multiplier exists only during economic expansions.
C) The size of the spending multiplier is dictated by the amount of government spending.
D) The value of the spending multiplier is the inverse of the marginal propensity to consume.

Question

Quizplus · Accepted Answer

The spending multiplier can indeed work in both directions to either increase or decrease equilibrium GDP, depending on whether the initial change in spending is positive or negative. It is not limited to economic expansions, nor is it solely dictated by government spending, and its value is related to the marginal propensity to consume but is not its inverse.

Which Statement About the Multiplier Is Correct