Hoe do the multiplier effect and the crowding-out effect change the consequences of an increase in government spending?
A)They both amplify the consequences.
B)They both diminish the consequences.
C)The multiplier effect diminishes the consequences, while the crowding-out effect amplifies the consequences.
D)The multiplier effect amplifies the consequences, while the crowding-out effect diminishes the consequences.

Question

Quizplus · Accepted Answer

The multiplier effect amplifies the consequences of an increase in government spending because it leads to further economic activity and growth, while the crowding-out effect diminishes the consequences by offsetting the positive impact of government spending with a decrease in private sector spending. Therefore, both effects have opposite impacts on the consequences of an increase in government spending, with the multiplier effect amplifying and the crowding-out effect diminishing the impact.

Hoe Do the Multiplier Effect and the Crowding-Out Effect Change