The multiplier ensures that equilibrium GDP equals full-employment GDP.
Multiplier effects make changes in government spending a powerful policy lever.The multiplier also increases the risk of error,however.In practice,we rarely know the exact size of the shortfall in aggregate demand.The multiplier is also harder to calculate when taxes and imports enter the picture.Nothing ensures that equilibrium GDP will be equal to full-employment GDP.

Question

Quizplus · Accepted Answer

While the multiplier can have an impact on equilibrium GDP and government spending policies, there is no guarantee that equilibrium GDP will always equal full-employment GDP. Additionally, calculating the multiplier can become more complex when accounting for taxes and imports.

The Multiplier Ensures That Equilibrium GDP Equals Full-Employment GDP