Which of the following statements about the multiplier effect is FALSE?
A) It works for increases in spending but not for decreases in spending.
B) It can be caused by a change in government purchases of goods and services.
C) It occurs when new nonincome-determined spending is injected into the circular flow.
D) Its size depends on how much is not spent from each successive round of income that is created.

Question

Quizplus · Accepted Answer

The multiplier effect works for both increases and decreases in spending, not just for increases. When spending increases, it leads to a chain reaction of increased incomes and further spending, and similarly, a decrease in spending can lead to a chain reaction of decreased incomes and further reductions in spending.

Which of the Following Statements About the Multiplier Effect Is