The multiplier effect indicates that:
A)a decline in the interest rate will cause a proportionately larger increase in investment.
B)a change in aggregate expenditures will change aggregate income by a larger amount.
C)a change in aggregate expenditures will increase aggregate income by the same amount.
D)a small increase in total income will generate a large change in aggregate expenditures.

Question

Quizplus · Accepted Answer

The multiplier effect is the concept that a change in aggregate expenditures (such as an increase in government spending or investment) will have a larger impact on aggregate income. This is because as income increases, people have more money to spend which in turn increases demand and production, generating even more income. Therefore, a change in aggregate expenditures will change aggregate income by a larger amount, indicating option B is correct.

The Multiplier Effect Indicates That