The multiplier effect:
A)reduces the MPC.
B)magnifies small changes in spending into larger changes in output and income.
C)promotes stability of the general price level.
D)lessens upswings and downswings in business activity.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the idea that a small change in spending can have a larger impact on output and income. This is because when someone spends money, that money goes towards paying for goods or services, which in turn pays for someone else's income. The person who received that income can then in turn spend some of that money, which creates another round of spending and income. This cycle continues, which magnifies the initial impact of spending into a larger impact on output and income. Therefore, option B is the correct answer.

The Multiplier Effect