Changes in government spending
A)are an indirect component of the expenditures schedule.
B)have a different multiplier effect than changes in business investment spending.
C)are a direct component of the expenditures schedule and have the same multiplier effect as changes in business investment spending.
D)do not have an effect on spending if they are matched by tax changes.

Question

Quizplus · Accepted Answer

Changes in government spending are a direct component of the expenditures schedule and have the same multiplier effect as changes in business investment spending. This means that an increase in government spending will lead to an increase in aggregate demand and ultimately result in a larger increase in real GDP compared to the initial increase in spending. However, a matching tax change can negate the effect of the government spending on aggregate demand.

Changes in Government Spending