For any initial increase in aggregate demand, the resulting multiplier effect will become Blank______ as the Blank______ in price level becomes greater.

Question

For any initial increase in aggregate demand, the resulting multiplier effect will become Blank______ as the Blank______ in price level becomes greater.
Multiple choice question.

smaller; increase

larger; increase

zero; decrease

infinite; decrease

GPT-4o mini · Answer

The correct answer is:

smaller; increase

As the increase in aggregate demand leads to a higher price level, the resulting multiplier effect diminishes. This means that the initial increase in demand will lead to smaller overall increases in output as prices rise.