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)None of the above is correct.

Question

Quizplus · Accepted Answer

The crowding-out effect tends to reduce the size of the shift in aggregate demand resulting from a tax change because it represents a decrease in private spending due to increased government spending or borrowing, which offsets the initial increase in aggregate demand caused by the tax change. This reduces the overall impact of the tax change on aggregate demand. The multiplier effect and accelerator effect, on the other hand, tend to amplify the size of the shift in aggregate demand resulting from a tax change.

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