In order to accurately capture the multiplier effect, it is important to know:
A) an individual's wealth.
B) what proportion of additional income people spend.
C) what people's expectations of the future are.
D) real GDP.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the idea that an initial increase in spending can lead to additional rounds of spending in the economy, as the income generated by the initial spending is re-spent by others. In order to capture this effect, it is important to know what proportion of additional income people spend, as this determines the extent to which additional rounds of spending are generated. Knowledge of an individual's wealth or their expectations of the future may be relevant in some contexts, but they are not essential for capturing the multiplier effect. Real GDP is a measure of the overall size of the economy, but it does not capture the details of spending behavior that are necessary for understanding the multiplier effect.

In Order to Accurately Capture the Multiplier Effect, It Is