The magnitude of the tax multiplier is ________ the magnitude of the government expenditure multiplier.

Question

Quizplus · Accepted Answer

The tax multiplier is always smaller than the government expenditure multiplier, because a dollar increase in taxes reduces disposable income and consumption spending by less than a dollar, while a dollar increase in government spending increases aggregate demand by exactly a dollar. Therefore, the tax multiplier is always less than one (in absolute value) while the government expenditure multiplier is always greater than one.

The Magnitude of the Tax Multiplier Is ________ the Magnitude