Question

After an increase in autonomous? spending, in the long? run, changes in the price level A....

After an increase in autonomous? spending, in the long? run, changes in the price level

A.

will not affect the multiplier.

B.

will make the AE curve flatter.

C.

will reduce the effect of the multiplier.

D.

will make the AE curve steeper.

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Answer #1

C. will reduce the effect of the multiplier

Multiplier measures the final impact on GDP due to change in spending in the economy. Changes in the price level would change interest rate in the economy. A change in the interest rate affect the level of spending so change in the price level will change the effect of the multiplier. Increase in spending will increase price level in the economy. This will increase interest rate and thus spending will decline so effect of multiplier will decline.

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