The economy will contract when:
A) the multiplier is zero.
B) the multiplier is a positive number.
C) total leakages from the spending stream are less than total injections.
D) total leakages from the spending stream are greater than total injections.

Question

Quizplus · Accepted Answer

When total leakages (such as savings, taxes, and imports) from the spending stream are greater than total injections (such as investment, government spending, and exports), it means that not all income is being recycled back into the economy, leading to a contraction in economic activity.

The Economy Will Contract When