The multiplier effect
A) generates instability in autonomous expenditure.
B) promotes stability of the general price level.
C) magnifies small changes in spending into larger changes in real GDP.
D) increases the MPC.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the phenomenon where an initial change in spending (either an increase or decrease) leads to a larger change in the overall real GDP. This is because the initial spending creates income for others, who then spend a portion of that income, creating further income for others, and so on, magnifying the initial spending change.

The Multiplier Effect