The multiplier effect relates:
A) Changes in the price level to changes in real GDP
B) Changes in the interest rate to changes in investment
C) Changes in disposable income to changes in consumption
D) Changes in spending to changes in real GDP

Question

Quizplus · Accepted Answer

The multiplier effect shows how changes in spending lead to multiplied effects on real GDP. When one person or entity spends money, that money becomes income for someone else, who then spends it themselves, and so on, leading to a chain reaction that multiplies the initial impact on spending. Therefore, changes in spending lead to changes in real GDP through this multiplier effect.

The Multiplier Effect Relates