Question
When an increase in government purchases increases the income of some people, and those people spend some of that increase in income on additional consumer goods, we have seen a demonstration of
a. the multiplier effect.
b. the investment accelerator.
c. the crowding-out effect.
d. supply-side economics.
e. none of the above.
a. the multiplier effect.
b. the investment accelerator.
c. the crowding-out effect.
d. supply-side economics.
e. none of the above.
Answers
GPT-4o mini
The correct answer is **a. the multiplier effect.**
The multiplier effect refers to the phenomenon where an initial increase in spending (in this case, government purchases) leads to a larger overall increase in income and economic activity as recipients of that spending go on to spend part of their income, further stimulating the economy.
The multiplier effect refers to the phenomenon where an initial increase in spending (in this case, government purchases) leads to a larger overall increase in income and economic activity as recipients of that spending go on to spend part of their income, further stimulating the economy.