Question

Why does the multiplier process lead to a manifold increase in income?

Options

• Because all income is saved and not spent

• Because one person’s expenditure becomes another person’s income

• Because taxes always decrease

• Because investment reduces consumption

Answer 1

Because one person’s expenditure becomes another person’s income

Explanation: 

The multiplier works through successive rounds of spending, where each person’s expenditure becomes income for others, leading to repeated increases in income.