The impact of the multiplier effect is to:
A) smooth out the up and down swings of the business cycle.
B) promote price stability.
C) magnify small changes in spending into much larger changes in real GDP.
D) reduce the impact of an increase in investment on output and employment.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the idea that a small change in autonomous spending (such as an increase in investment or government spending) can lead to a much larger change in the overall level of real GDP. This is because the initial spending leads to an increase in income, which in turn leads to further rounds of spending and income increases. Therefore, the impact of the multiplier effect is to magnify small changes in spending into much larger changes in real GDP.

The Impact of the Multiplier Effect Is To