Question

The reason for the multiplier effect is that a. businesses make decisions about investment projects based on anticipated profits. b. one person's additional expenditure creates a new source of income for another person, and this additional income leads to still more spending. c. changes in government spending typically deepen recessions and exacerbate inflationary conditions in the economy. d. additional spending lowers the rate of interest and leads to further borrowing and spending.

Answer 1

Answer: Option B    

Explanation: In simple words, multiplier effect refers to the process under which a particular amount of expenditure results in the change in income greater than the amount of that expenditure made.

Usually this is used to depict the impact of the expenditures made by the government to boos the economy.

Hence from the above we can conclude that the correct option is B.