The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

Question

Quizplus · Accepted Answer

The tax multiplier is smaller because when taxes are decreased, some portion of the money will be saved by households and not spent, and some portion will be spent on imported goods. In contrast, when government purchases increase, the money will be spent in the economy and will not be saved or spent on imported goods, resulting in a larger multiplier effect.

The Tax Multiplier Is Smaller in Absolute Value Than the Government