The multiplier effect of government purchases of goods and services:

Question

Quizplus · Accepted Answer

The multiplier effect of government purchases of goods and services has a more direct and bigger impact than an equal amount of tax changes. Government purchases inject new money into the economy, creating a direct increase in aggregate demand, leading to an increase in output and income levels, and ultimately leading to a multiplier effect. On the other hand, tax changes have a less direct effect on aggregate demand, and the multiplier effect is relatively smaller than that of government purchases.

The Multiplier Effect of Government Purchases of Goods and Services