An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the
A) net export effect.
B) wealth effect.
C) real-balances effect.
D) multiplier effect.

Question

Quizplus · Accepted Answer

The multiplier effect is the process by which any change in autonomous spending (or investment) leads to a larger change in real GDP. This multiplier effect arises due to the induced changes in spending that occur when changes in income lead to changes in consumption, which in turn leads to changes in income again thus setting off a chain reaction. Therefore, a change in autonomous spending leads to a multiplied change in overall aggregate demand.

An Economy's Aggregate Demand Curve Shifts Leftward or Rightward by More