The magnitude of the tax multiplier_________ the magnitude of the government expenditure multiplier.
A) is larger than
B) is smaller than
C) is equal to
D) is not comparable to

Question

Quizplus · Accepted Answer

The tax multiplier is smaller than the government expenditure multiplier. This is because when the government increases its expenditures, there is a direct injection of money into the economy which has a magnified effect on aggregate demand. However, when the government increases taxes, it reduces disposable income for individuals and firms, resulting in a decrease in spending and a smaller effect on aggregate demand. Therefore, the magnitude of the government expenditure multiplier is larger than the magnitude of the tax multiplier.

The Magnitude of the Tax Multiplier_________ the Magnitude of the Government