What does an increase in the multiplier indicate about an economy's responsiveness to changes in AD?

An increase in the multiplier signifies that the economy is more responsive to changes in aggregate demand (AD). The multiplier effect describes how an initial change in spending leads to a greater overall increase in economic activity. When the multiplier increases, it means that for every dollar spent, the resulting increase in output and income is greater than it was before.

This higher multiplier indicates that consumer, business, and government spending will have a stronger ripple effect throughout the economy. As a result, any initial increase in expenditure will lead to more significant overall growth in GDP, enhanced employment opportunities, and increased consumer spending, all of which further boost aggregate demand.

When examining the other options, a decrease in responsiveness would imply that the economy is less affected by changes in AD, which contradicts the concept that a higher multiplier means an amplified reaction. The assertion that there is no effect on responsiveness overlooks the direct connection between the size of the multiplier and economic reaction to spending changes. Lastly, the idea that responsiveness varies without establishing a clear relationship fails to account for the consistent pattern that an increased multiplier leads to greater sensitivity within the economy regarding changes in AD.