Question 21 of 24 - Ch. 8 Homework Aggregate Expenditures
Which best describes why the multiplier exists?
When people spend money, that money ends up in the pockets or bank accounts of other people or organizations, who then use that money in some way.
When people see other people spending money, they know that the economy is about to improve, leading them to spend more money.
When people see the government spending more money, they realize that the government thinks that prices are low, thus, they believe it is a good time to buy things.
The multiplier exists because money spent today is always more valuable than money spent in the future, due to inflation and interest rates.
