The spending multiplier indicates that:
A) changes in investment, government, or consumption spending trigger much larger changes in real GDP.
B) an autonomous increase in saving will cause output to rise by a multiple of the additional saving.
C) a market economy will be more stable than classical economists thought.
D) the marginal propensity to consume is greater than one.

Question

Quizplus · Accepted Answer

The spending multiplier is a measure of the amount by which real GDP will increase as a result of an increase in spending. According to the concept of the multiplier, initial increases in investment, government, or consumption spending trigger larger increases in real GDP. For example, if government spending increases by $100 million and the multiplier is 2, then real GDP will increase by $200 million.

The Spending Multiplier Indicates That