The multiplier effect demonstrates that
A)equal increases in government spending and taxes do not change the equilibrium GDP.
B)equal increases in government spending and taxes reduce the equilibrium GDP.
C)equal increases in government spending and taxes increase the equilibrium GDP.
D)taxes have a stronger effect upon equilibrium GDP than do government purchases.

Question

Quizplus · Accepted Answer

The multiplier effect suggests that an increase in government spending has a more significant impact on equilibrium GDP than an equivalent increase in taxes, due to the initial spending leading to further rounds of spending.

The Multiplier Effect Demonstrates That