The expenditure multiplier indicates that
A) changes in investment, government, or consumption spending can trigger much larger changes in output.
B) an 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 expenditure multiplier indicates that changes in investment, government, or consumption spending can trigger much larger changes in output. This means that a small change in spending can have a multiplied effect on output. For example, if the government increases spending by $100 million, it may ultimately result in an increase in output of $500 million or more. This is due to the multiplier effect, which is a result of increased spending leading to increased income, which in turn leads to more spending and further increases in income.

The Expenditure Multiplier Indicates That