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    Question

    In economic theory, the term "multiplier" refers to the

    ratio between increased income and increased:
    A Liability Correct Answer Incorrect Answer
    B Debt Correct Answer Incorrect Answer
    C Credit Correct Answer Incorrect Answer
    D Investment Correct Answer Incorrect Answer

    Solution

    In economics, the multiplier concept specifically measures the ratio between the change in national or total income and the initial change in investment expenditure. This fundamental macroeconomic principle illustrates how an initial investment can generate a proportionally larger increase in overall economic activity and income. The multiplier effect operates through successive rounds of spending: an initial investment creates income for recipients, who then spend a portion of this income, creating additional income for others, and so forth through multiple economic cycles. The alternative options—liability, debt, and credit—while important financial concepts, do not define the multiplier relationship in economic theory. The investment multiplier particularly underscores how strategic investment decisions can have amplified positive impacts throughout an economy.

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