The multiplier applies to
A) investment but not to net exports or government spending.
B) investment, net exports, and government spending.
C) increases in spending but not to decreases in spending.
D) spending by the private sector but not by the public sector.

Question

Quizplus · Accepted Answer

The multiplier applies to all three components of GDP: investment, net exports, and government spending. The multiplier effect is the idea that an initial increase in spending will lead to a larger increase in GDP. This happens because the initial spending leads to increased incomes for those contributing to GDP, who then go on to spend some of their increased income, leading to further increases in GDP. The multiplier effect works for both increases and decreases in spending.

The Multiplier Applies to