Economics • Economic BasicsEasy
What does the 'Multiplier Effect' in Keynesian economics signify?
A. The proportion of an aggregate increase in income that is saved rather than spent.
B. The proportional change in national income resulting from a change in autonomous spending.✓ Correct Answer
C. The rate at which central banks expand commercial bank reserves through open market operations.
D. The compounded growth of debt over multiple fiscal cycles.
💡 Solution & Explanation
The Keynesian multiplier measures the proportional variation in aggregate national income triggered by a change in autonomous expenditure such as government spending or investment. A higher marginal propensity to consume results in a larger multiplier value. This fundamental concept helps policymakers evaluate the impact of fiscal stimuli on overall economic output.
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