A change in any component of aggregate demand creates a larger change in overall aggregate demand. This is the ________ effect, and it means , for example, that a ________ in consumption will cause an even larger ________ in AD.
A)multiplier; increase; decrease
B)liquidity; decrease; decrease
C)growth; increase; decrease
D)multiplier; decrease; decrease
E)liquidity; increase; decrease

Question

Quizplus · Accepted Answer

This is referring to the multiplier effect, which states that a change in any component of aggregate demand (such as consumption) will have a larger impact on overall aggregate demand due to the multiplier effect. In this case, a decrease in consumption will cause an even larger decrease in AD due to the multiplier effect, hence the correct answer is D. None of the other choices describe this phenomenon accurately.

A Change in Any Component of Aggregate Demand Creates a Larger