In order to accurately capture the multiplier effect, it is important to know:
A) individual's wealth.
B) what proportion of their additional income people spend.
C) what people's expectations of the future are.
D) real GDP.

Question

Quizplus · Accepted Answer

The multiplier effect is based on the idea that an initial increase in spending will lead to subsequent increases in spending, as the money continues to circulate throughout the economy. In order to accurately capture this effect, it is important to know what proportion of additional income people will spend (as opposed to saving or using to pay off debt). The other options listed (individual wealth, future expectations, real GDP) may also impact economic activity, but are not as directly relevant to the multiplier effect.

In Order to Accurately Capture the Multiplier Effect, It Is