Figure 10-2

-One reason the oversimplified multiplier is incorrect is that inflation
A)increases the multiplier by increasing investment spending.
B)increases the multiplier by increasing consumer spending.
C)decreases the multiplier by increasing net exports.
D)decreases the multiplier by decreasing consumer spending.

Question

Figure 10-2
​ 
-One reason the oversimplified multiplier is incorrect is that inflation
A)increases the multiplier by increasing investment spending. 
B)increases the multiplier by increasing consumer spending. 
C)decreases the multiplier by increasing net exports. 
D)decreases the multiplier by decreasing consumer spending.

Quizplus · Accepted Answer

Inflation decreases the purchasing power of consumers, leading to a decrease in consumer spending. This reduces the effectiveness of the multiplier effect, resulting in a decrease in the value of the multiplier. Therefore, option D is the correct answer. Options A and B are incorrect because inflation does not necessarily increase investment or consumer spending. Option C is also incorrect because inflation affects net exports indirectly, rather than directly impacting the multiplier.

Figure 10-2 ​

Figure 10-2