At the beginning of a recession, the expenditure multiplier
A) offsets the initial cut in autonomous expenditure and slows the recession.
B) reinforces the initial cut in autonomous expenditure and adds force to the recession.
C) offsets the initial cut in autonomous expenditure and reverses the recession.
D) reinforces the initial cut in autonomous expenditure and reverses the recession.
E) has no effect on the recession.

Question

Quizplus · Accepted Answer

The expenditure multiplier reinforces the initial cut in autonomous expenditure and adds force to the recession. This is because the multiplier effect works both ways, amplifying both increases and decreases in autonomous expenditure. As a result, a decrease in autonomous expenditure leads to a decrease in total expenditure, which leads to a further decrease in income and consumption, creating a downward spiral or a recession.

At the Beginning of a Recession, the Expenditure Multiplier