The multiplier effect:
A) equals the change in total spending divided by the change in total output.
B) is larger the greater the portion of total spending going toward the purchase of imports.
C) allows for an increase, but not a decrease, in total output and income since wages and other incomes tend not to fall.
D) refers to the fact that a change in nonincome-determined spending leads to a larger change in total output and employment.

Question

Quizplus · Accepted Answer

The multiplier effect refers to how an initial change in spending (such as government spending, investment, or consumption) leads to a larger change in total output and employment. This occurs because the initial spending creates income for others, who then spend a portion of that income, creating further income for others, and so on.

The Multiplier Effect