The multiplier effect on total output in the economy occurs because an initial change in:
A) income-determined spending leads to further changes in income-determined spending.
B) nonincome-determined spending leads to further changes in income-determined spending.
C) income-determined spending leads to further changes in nonincome-determined spending.
D) nonincome-determined spending leads to further changes in nonincome-determined spending.

Question

Quizplus · Accepted Answer

The multiplier effect occurs when an initial change in nonincome-determined spending (such as investment, government spending, or exports) leads to further changes in income-determined spending (such as consumption). This process amplifies the initial impact on the economy's total output.

The Multiplier Effect on Total Output in the Economy Occurs