In the long run, the multiplier
A)has a larger effect on real GDP than it has in the short run, because the multiplier effect has a longer time period to exert its impact on the economy.
B)has a larger effect on real GDP than it has in the short run, because there are more induced expenditures in the long run.
C)has a larger effect on real GDP than it has in the short run because of changes in the price level.
D)has a smaller effect on real GDP than it has in the short run because of changes in the price level.
E)can have a smaller or larger effect on real GDP than it has in the short run.

Question

Quizplus · Accepted Answer

In the long run, the multiplier effect is smaller because changes in the price level can offset the initial increase in aggregate demand, leading to adjustments in wages and prices that dampen the impact on real GDP.

In the Long Run, the Multiplier