Which of the following best defines the multiplier effect?
A) the multiplied impact on the money supply of a given increase in government purchases
B) the multiplied impact on tax revenues of a given increase in government purchases
C) the multiplied impact on investment of a given increase in interest rates
D) the multiplied impact on aggregate demand of a given increase in government purchases

Question

Quizplus · Accepted Answer

The multiplier effect refers to the multiplied impact on aggregate demand (total spending in the economy) of a given increase in government purchases. When the government spends more, this increases the income and demand for goods and services of the recipients of government payments. In turn, these recipients spend more, leading to a further increase in demand, and so on. The multiplier effect can amplify the initial impact of government purchases on aggregate demand, making fiscal policy more effective in boosting economic growth and employment.

Which of the Following Best Defines the Multiplier Effect