Understanding the Multiplier Process

What triggers the multiplier effect in an economy?

• A decrease in overall spending

• An initial change in spending by consumers, businesses, or the government

• A reduction in taxes without any change in spending

• An increase in imports

What does the multiplier effect lead to in terms of an economy's total output or income?

• A smaller and less significant impact

• No change in the economy's total output or income

• A larger and more widespread impact

• A temporary boost followed by a rapid decline

How does the multiplier effect illustrate the impact of changes in spending?

• By showing a direct one-to-one increase in economic activity

• By demonstrating a decrease in economic activity

• By creating a ripple effect throughout the economy with additional rounds of economic activity

• By limiting the economic activity to the initial spending only

What is the consequence of increased spending by an individual in the context of the multiplier effect?

• It leads to a decrease in demand for goods and services

• It results in businesses reducing production and laying off workers

• It creates additional demand, prompting businesses to increase production and hire more workers

• It causes inflation without any increase in production

What is the purpose of the government injecting £200m in a project to build affordable new houses according to the text?

• To decrease the national debt

• To stimulate aggregate demand and economic growth

• To reduce the number of businesses in the construction industry

• To increase the unemployment rate

What is likely to happen if the extra incomes from constructing new houses stay inside the circular flow of income and spending?

• The multiplier effect will be weak

• The final impact on GDP will be small

• The multiplier effect is likely to be strong and the final impact on GDP quite large

• The government will inject more money into the economy

Which of the following is a direct benefit of a new house building project?

• Decrease in wages and profits

• Increase in demand for building supply industries, architects, etc.

• Reduction in the circular flow of income and spending

• Decrease in aggregate demand

What is the multiplier effect?

• A decrease in national income due to reduced spending

• An initial change in an injection or leakage that has a greater final impact on equilibrium national income

• A direct one-to-one increase in national income following an investment

• A government policy to reduce inflation

How does the multiplier effect occur?

• Through a decrease in the circular flow of income

• By reducing the levels of national output and employment

• Because one person's spending becomes another person's income, stimulating further rounds of spending

• Through a direct intervention by the government in the economy

What is the result of the multiplier effect on the level of national output and total employment?

• It leads to a smaller final effect on the level of national output and total employment

• It has no significant effect on the level of national output and total employment

• It leads to a bigger final effect on the level of national output and total employment

• It reduces the level of national output and total employment due to increased taxes