The multiplier effect
A) measures how much a price increase for one good will affect the exchange rate.
B) measures how much a price increase for one good will affect the overall rate of inflation.
C) measures how much a new injection of spending will affect overall GDP.
D) measures how much a new injection of spending will affect the overall rate of inflation.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the potential ripple effect of a new injection of spending on overall GDP. This means that additional spending can lead to more production, which in turn leads to more employment and income, which then leads to even more spending and production, and so on. The multiplier effect is a key concept in macroeconomics and is often used to estimate the potential impact of government spending or tax policies on overall economic growth.

The Multiplier Effect