Which of the following best describes the multiplier?

Question

Quizplus · Accepted Answer

The multiplier shows the magnified change in equilibrium output demanded that arises from a change in planned aggregate spending. This is because a change in planned aggregate spending leads to a change in output and income, which in turn leads to a further change in spending due to the income effect. The multiplier effect is captured by the formula 1/(1-MPC), where MPC is the marginal propensity to consume, which measures the increase in consumer spending for every dollar increase in income.

Which of the Following Best Describes the Multiplier