Without a fall in the price level, any initial decrease in aggregate demand results in the multiplier being at Blank______.

Question

Multiple choice question.

full strength

low levels

reduced strength

high levels

Answer 1

The correct answer is reduced strength.

In the context of aggregate demand and the multiplier effect, an initial decrease in aggregate demand without a fall in the price level can lead to a situation where the multiplier operates at reduced strength due to factors such as lower income levels and decreased consumer confidence, which can dampen further spending.