When the government develops policies to stabilize the economy
A) these policies are unaffected by the multiplier effect.
B) only expansionary fiscal policy is impacted by the multiplier effect.
C) it needs to consider the multiplier effect for all fiscal policies.
D) only contractionary fiscal policy is impacted by the multiplier effect.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the idea that a change in government spending or taxation can have a greater impact on the overall economy than just the initial change. As such, when developing policies to stabilize the economy, the government needs to consider the potential multiplier effects of those policies, regardless of whether they are expansionary or contractionary. This suggests that choice C is the correct answer. Choices A, B, and D are incorrect because they do not reflect the importance of considering the multiplier effect for all fiscal policies.

When the Government Develops Policies to Stabilize the Economy