Consider the AD/AS model in which the price level varies.In this case,the multiplier is ________ the simple multiplier.
A)larger than
B)smaller than
C)definitionally the same as
D)not comparable to
E)equal to

Question

Quizplus · Accepted Answer

The multiplier in the AD/AS model, where the price level varies, is smaller than the simple multiplier because as prices rise, the real value of money decreases, leading to a lower level of consumption and investment than would be predicted by the simple multiplier, which does not account for changes in the price level.

Consider the AD/AS Model in Which the Price Level Varies