Question 4 (1.00 points)
The multiplier effect indicates that:
a. a decline in the interest rate will cause a proportionately larger increase in investment.
b. a change in spending will change aggregate income by a larger amount.
c. a change in spending will increase aggregate income by the same amount.
d. an increase in total income will generate a larger change in aggregate expenditures.
what is critical in determining whether something is produced as a public good?
To find the answer to this question, we need to understand what the multiplier effect is. The multiplier effect refers to the idea that a change in spending will result in a larger change in aggregate income. In other words, when there is an increase in spending, it will create a ripple effect in the economy, leading to an increase in income and output.
Now, let's look at the answer choices:
a. a decline in the interest rate will cause a proportionately larger increase in investment.
This statement is not correct. The multiplier effect is primarily concerned with changes in spending, not changes in interest rates or investment.
b. a change in spending will change aggregate income by a larger amount.
This statement aligns with the definition of the multiplier effect. When there is a change in spending, it will have a larger impact on aggregate income.
c. a change in spending will increase aggregate income by the same amount.
This statement is not correct. The multiplier effect suggests that a change in spending will result in a larger change in aggregate income, not the same amount.
d. an increase in total income will generate a larger change in aggregate expenditures.
This statement is not correct. The multiplier effect focuses on the relationship between changes in spending and changes in aggregate income, not changes in total income and aggregate expenditures.
Based on our analysis, the correct answer is b. a change in spending will change aggregate income by a larger amount, as it accurately reflects the concept of the multiplier effect.