When the government increases its spending growth,the subsequent increase in nongovernment spending stimulates aggregate demand and is called the _____ effect.

Question

Quizplus · Accepted Answer

The effect described is the multiplier effect, which occurs when an increase in government spending leads to an increase in non-government spending due to the additional income generated in the economy. The crowding out effect occurs when government spending increases lead to higher interest rates, which can decrease private investment. The endowment effect refers to people's tendency to value things they already possess more than things they do not have. Automatic stabilizers refer to government policies that automatically adjust to changes in economic activity, such as unemployment insurance or progressive taxation.

When the Government Increases Its Spending Growth,the Subsequent Increase in Nongovernment