The multiplier effect means that
A) consumption is typically several times as large as saving.
B) a change in consumption can cause a larger increase in investment.
C) an increase in investment can cause GDP to change by a larger amount.
D) a decline in the MPC can cause GDP to rise by several times that amount.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the idea that a change in investment can cause a larger change in GDP. This is because the initial investment will lead to increased spending and incomes, which in turn will lead to additional rounds of spending and incomes, resulting in a larger total increase in GDP.

The Multiplier Effect Means That