Question

The multiplier process magnifies the initial change in spending through successive rounds of what?

a) Consumption
b) Taxation
c) Investment
d) Savings

Answer 1

The multiplier process magnifies the initial change in spending through successive rounds of consumption.

Step-by-step explanation:

The multiplier process magnifies the initial change in spending through successive rounds of consumption.

The multiplier effect describes how an initial change in aggregate demand generated several times as much as cumulative GDP. The size of the spending multiplier is determined by three leakages: spending on savings, taxes, and imports. As people receive income from the initial spending, they will spend a portion of it, which in turn becomes income for others, leading to further rounds of spending and an overall increase in aggregate expenditure.

For example, if the initial government spending increases by $100, it can raise aggregate expenditure by $213, resulting in a multiplier of 2.13.