Question

The observation that the final increase in output and aggregate demand exceeds the initial increase in autonomous expenditure reflects:

Options

• The multiplier effect of an initial increment in autonomous expenditure

• The tendency of firms to cut output under excess demand

• The equality of income and expenditure at every point on the AD curve

• A downward drift of the AD curve toward the 45° line

Answer 1

Because an initial increment in autonomous expenditure generates a final increase in output and aggregate demand larger than itself, it is said to have a multiplier effect on equilibrium output and aggregate demand.