A reason the government expenditure multiplier is larger than 1 is because
A) government expenditure always increases.
B) government expenditure generates changes in consumption expenditure.
C) investment increases when government expenditure increases.
D) taxes are left unchanged.

Question

Quizplus · Accepted Answer

The government expenditure multiplier is larger than 1 because government spending generates changes in consumption expenditure. When the government spends money on goods and services, it creates income for the individuals and firms who provide those goods and services. This increase in income then leads to increased consumption spending, as people have more money to spend. This increase in consumption spending further increases aggregate demand, leading to a larger overall multiplier effect on the economy.

A Reason the Government Expenditure Multiplier Is Larger Than 1