Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than otherwise?
A)the multiplier effect
B)the crowding-out effect
C)the accelerator effect
D)the Fisher effect

Question

Quizplus · Accepted Answer

The crowding-out effect tends to make the size of a shift in aggregate demand resulting from a tax change smaller than otherwise, as it occurs when government borrowing to finance the tax cut increases interest rates, reducing private sector borrowing and spending. The multiplier effect, on the other hand, amplifies the shift in aggregate demand, increasing its size. The accelerator effect refers to the positive relationship between investment and aggregate output, while the Fisher effect describes the relationship between inflation and nominal interest rates.

Which of the Following Tends to Make the Size of a Shift