If the economy is in the expansion phase of a business cycle and investment increases, when the multiplier effect kicks in the expansion
A) picks up speed.
B) slows down.
C) peaks.
D) is not effected.
E) reverses.

Question

Quizplus · Accepted Answer

When the economy is in the expansion phase and investment increases, the multiplier effect will lead to an increase in output and economic activity. This increase will pick up speed and lead to even more expansion, creating a positive feedback loop. Therefore, the correct choice is A – the expansion phase will pick up speed.

If the Economy Is in the Expansion Phase of a Business