If the economy is already at its potential output, then the spending multiplier is _____

Question

Quizplus · Accepted Answer

When the economy is at its potential output, any additional spending will not increase the output in the long run due to constraints like full employment and resource utilization, leading to inflation rather than real output growth. Thus, the spending multiplier is considered to be zero in the long run as additional spending does not lead to an increase in output.

If the Economy Is Already at Its Potential Output, Then