Which of the following is an example of the multiplier at work as a result of an

Question

Which of the following is an example of the multiplier at work as a result of an increase in consumption expenditures?
-Consumers compete with the government by increasing their expenditures, causing businesses to increase their investments in order to satisfy the increased demand.
-Consumption expenditures increase inflation, which reduces real incomes; consumer expenditures and investment decline, which reduces aggregate spending.
-Households and businesses receive income from consumption expenditures; they spend a portion of this new income; these expenditures in turn generate income for other businesses and households, which in turn spend a portion of the new income, and so on.
-Consumption expenditures stimulate investment in new plant and equipment in order to produce goods and services for the government, which provides jobs and increases incomes.

Explanation / Answer

Households and businesses receive income from consumption expenditures; they spend a portion of this new income; these expenditures in turn generate income for other businesses and households, which in turn spend a portion of the new income, and so on

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