Multiplier process in economic theory is conventionally taken to mean : Options: A . &nbspincome of an economy grows on account of an initial investment B . &nbspthe manner in which government expenditure increases C . &nbspthe manner in which banks create credit D . &nbspthe manner in which prices increase

Multiplier process in economic theory is conventionally taken to mean :

Question

Multiplier process in economic theory is conventionally taken to mean :

Options:

A . income of an economy grows on account of an initial investment

B . the manner in which government expenditure increases

C . the manner in which banks create credit

D . the manner in which prices increase

Answer: Option A
Answer: (a)
In economics, a multiplier is a factor of proportionality that measures how much endogenous variable changes in response to a change in some exogenous variable. For example, suppose a one-unit change in some variable x causes another variable y to change by M units.
Then the multiplier is M. In monetary macroeconomics and banking, the money multiplier measures how much the money supply increases in response to a change in the monetary base.
The multiplier may vary across countries, and will also vary depending on what measures of money are considered. For example, consider M2 as a measure of the U.S. money supply, and M0 as a measure of the U.S. monetary base.
If a USD1 increase in M0 by the Federal Reserve causes M2 to increase by $10, then the money multiplier is 10.

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