How does the multiplier for a change in government spending compare to the multiplier for a change in taxes?
A)It is smaller.
B)It is the same.
C)It is larger.
D)It cannot be calculated.

Question

Quizplus · Accepted Answer

The multiplier for a change in government spending is larger than the multiplier for a change in taxes because every dollar of government spending directly increases aggregate demand by the full amount of the spending, while a tax cut increases aggregate demand by only a portion of the tax cut, as some of the tax savings may be saved rather than spent.

How Does the Multiplier for a Change in Government Spending