Final answer:
The visible effect of the multiplier within a short time is less than its total effect. Price ceilings have the largest effect when set substantially below equilibrium, as they become very binding and cause shortages. Price floors have the largest effect when set substantially above equilibrium, creating a surplus.
Step-by-step explanation:
The extent of the multiplier effect visible within a short time will be C. less than the total effect indicated by the multiplier formula. The multiplier effect typically takes time to work its way through the economy as an initial increase in spending leads to increased income which in turn leads to increased consumption, creating a virtuous cycle. However, within a short period, not all stages of this cycle will have had the time to occur, so the short-term visible effect will be less than the full effect predicted by the multiplier.
Regarding the question about the price ceiling, it will have the largest effect if it is set a. substantially below the equilibrium price. Setting a price ceiling well below the equilibrium price makes it very binding, leading to a significant shortage as the quantity demanded at that price exceeds the quantity supplied.
In contrast, for a price floor, the largest effect will occur if it is set a. substantially above the equilibrium price. This creates a surplus, as the quantity supplied at that price will be much higher than the quantity demanded.