How does the spending multiplier compare between a $1,000 increase in government spending and a $1,000 decrease in taxes collected?
A) An increase in government spending has a greater spending multiplier than an equivalent tax decrease.
B) An increase in government spending has a smaller spending multiplier than an equivalent tax decrease.
C) An increase in government spending has the same spending multiplier as an equivalent tax decrease.
D) Neither an increase in government spending nor a decrease in taxes generates any multiplier at all.

Question

Quizplus · Accepted Answer

An increase in government spending directly injects money into the economy, leading to a larger initial impact and a greater spending multiplier compared to a tax decrease, which relies on individuals spending their additional disposable income.

How Does the Spending Multiplier Compare Between a $1,000 Increase