What is the term for a deflationary spiral where weak economic demand raises unemployment, cutting spending power and further depressing demand ?
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Answer: B. The downward multiplier
Explanation
The downward multiplier describes the cumulative contractionary effect where reduced spending lowers incomes and further depresses aggregate demand. Initial drops in consumer or business spending trigger a cascading wave of job losses and wage cuts throughout the economy. This negative feedback loop amplifies macroeconomic recessions well beyond the initial shock that triggered the downturn. The Keynesian multiplier effect demonstrates how initial changes in spending generate larger ultimate changes in national income. Marginal propensity to consume determines the magnitude of spending ripples moving through interconnected economic sectors. Deflationary spirals and downward multipliers represent severe macroeconomic coordination failures during economic depressions.
The upward accelerator describes capital investment responses to changing national income rather than a downward spending spiral. The upward production possibility frontier illustrates economic growth limits rather than aggregate demand contraction multipliers. The downward marginal propensity to consume affects the multiplier size rather than naming the contractionary spiral itself.
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