The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because
A) the real-world MPS is larger than the MPS in the examples.
B) in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.
C) the gap between the nominal interest rate and the real interest rate widens as the economy expands or contracts.
D) the MPC in the United States is greater than 1.

Question

Quizplus · Accepted Answer

The actual multiplier effect is less than the multiplier effect in the text examples because in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes. This means that a portion of any increase in spending leaks out of the domestic economy, reducing the overall impact of the multiplier effect. Therefore, choice B is the correct answer. Choices A, C, and D are incorrect because they do not explain why the multiplier effect in the U.S. economy is less than the multiplier effect in the text examples.

The Actual Multiplier Effect in the U