Economics • Economic BasicsMedium
In macroeconomics, what does the 'Multiplier Effect' measure?
A. The proportional change in total output resulting from an autonomous change in aggregate spending✓ Correct Answer
B. The rate at which prices multiply during periods of hyperinflation
C. The ratio of total tax revenue to national income
D. The speed at which money circulates through the commercial banking sector
💡 Solution & Explanation
The multiplier effect in Keynesian macroeconomics describes how an initial injection of autonomous spending leads to a proportionately larger cumulative expansion in national income and aggregate output. Economic concepts like price inflation rates or velocity of money circulation measure different monetary dynamics rather than expenditure amplification. This principle is mathematically linked to the marginal propensity to consume within an economic system.
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