The simple multiplier applies:
A)only when an inflationary gap exists.
B)to shifts in the consumption and investment schedules.
C)only to shifts in the investment schedule.
D)only to shifts in the consumption schedule.

Question

Quizplus · Accepted Answer

The simple multiplier applies to shifts in both the consumption and investment schedules. When either schedule shifts, it affects the total spending in the economy and therefore the overall level of economic activity. The multiplier represents the amount by which an initial change in spending will ultimately affect output. It does not depend on the existence of an inflationary gap.

The Simple Multiplier Applies