The tax and government transfer payment multiplier is smaller than the government purchases multiplier because all of an increase in government purchases is spent, only some of tax cuts or increases in government transfers is spent.

Question

Quizplus · Accepted Answer

The government purchases multiplier is larger because it directly increases aggregate demand, while tax cuts or transfers only indirectly affect demand as recipients may save part of the additional income.

The Tax and Government Transfer Payment Multiplier Is Smaller Than