The government expenditure multiplier and the tax multiplier are

Question

Quizplus · Accepted Answer

The government expenditure multiplier and the tax multiplier are both measures of the impact of changes in government spending or taxes on the overall level of economic activity (GDP). However, they operate in opposite directions. An increase in government spending will increase GDP, while an increase in taxes will decrease GDP. The size of the multipliers depends on various factors, such as the marginal propensity to consume and the extent to which the additional spending or taxation is absorbed by imports.

Empirical studies suggest that the government expenditure multiplier tends to be larger than the tax multiplier, because government spending tends to have a more direct and immediate impact on domestic demand, while taxes can dampen consumption and investment. However, the exact size of the multipliers depends on the particular circumstances of the economy and the nature of the policy changes. Therefore, choice E is the correct answer, as it reflects the difference in size between the two multipliers, with the government expenditure multiplier being typically larger.

The Government Expenditure Multiplier and the Tax Multiplier Are