If the government increases its spending, which of the following would tend to reduce the size of the multiplier?
A) higher taxes for the finance of the additional spending
B) higher interest rates as the result of additional borrowing to finance the spending
C) the flow of the spending into sectors where the unemployment rate is low
D) all of the above

Question

Quizplus · Accepted Answer

Higher taxes reduce disposable income, higher interest rates can crowd out private investment, and spending in low-unemployment sectors may not significantly boost overall demand, all of which can reduce the multiplier effect.

If the Government Increases Its Spending, Which of the Following