The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

Question

Quizplus · Accepted Answer

The multiplier effect occurs when an increase in expenditure leads to a larger increase in national income, as the initial increase in expenditure leads to induced increases in consumption expenditure by households and businesses. This results in further rounds of spending and income increases, ultimately amplifying the initial increase in expenditure.

The Multiplier Effect Following an Increase in Expenditure Is Generated