The multiplier effect means that

Question

Multiple Choice
consumption is typically several times as large as saving.
a change in consumption can cause a larger increase in investment.
an increase in investment can cause GDP to change by a larger amount.
a decline in the MPC can cause GDP to rise by several times that amount.

Answer 1

The correct answer is:

an increase in investment can cause GDP to change by a larger amount.

The multiplier effect refers to the phenomenon where an initial change in spending (such as investment) leads to a greater overall change in economic activity (like GDP) due to subsequent rounds of consumption that follow the initial increase in expenditure.