The multiplier effect means that:
A)consumption is typically several times as large as saving.
B)a small change in consumption demand can cause a much larger increase in investment.
C)a small decline in the MPC can cause equilibrium GDP to rise by several times that amount.
D)a small increase in investment can cause national income to change by a larger amount.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the phenomenon where a small change in investment can cause national income to change by a larger amount. This occurs because increased investment leads to increased spending, which then leads to increased income for those who received the spending, and so on. This process continues until the total increase in income is greater than the initial increase in investment. Therefore, choice D is the best answer.

The Multiplier Effect Means That