In the simple Keynesian model,government spending
A)have a smaller multiplier than tax changes.
B)can have a larger or smaller multiplier depending upon monetary policy
C)have the same multiplier as changes in taxes.
D)have a greater multiplier than tax changes.

Question

Quizplus · Accepted Answer

In the simple Keynesian model, government spending has a greater multiplier than tax changes because government spending directly increases aggregate demand by injection of new income into the economy. In contrast, tax changes affect disposable income, which in turn affects consumption and saving decisions, resulting in a smaller multiplier effect. As government spending has a larger multiplier effect, it can be an effective tool for stimulating the economy during a downturn.

In the Simple Keynesian Model,government Spending