effect on AD- spare capacity

• What does the multiplier effect lead to in terms of aggregate demand (AD)?

  It leads to an increase in AD higher than the original increase
• What condition must be met for the multiplier to have the desired effect?

  There must be sufficient spare capacity in the economy
• What does "spare capacity" in the economy refer to?

  It refers to the ability to produce extra output
• Why is spare capacity important for the multiplier effect?

  It allows for extra output to be produced
• What happens if the economy is at full output regarding the multiplier effect?

  The multiplier effect cannot have the desired impact
• What factors determine the increase in AD?

  Initial increase in AD and multiplier size
• How does the size of the initial increase in AD affect the overall increase in AD?

  A larger initial increase leads to a greater overall increase
• What is the relationship between the multiplier and the increase in AD?

  A larger multiplier amplifies the increase in AD