When expansionary fiscal policy increases income and thus consumer spending,the additional increase in AD it causes is called the:

Question

Quizplus · Accepted Answer

The additional increase in aggregate demand (AD) caused by expansionary fiscal policy is referred to as the multiplier effect. As income and consumer spending increase, this creates a ripple effect throughout the economy, leading to increased production, investments, and job creation. The multiplier effect can amplify the initial impact of fiscal policy, resulting in a greater level of economic growth and activity than would have occurred otherwise. Choice A, crowding out effect, refers to the potentially negative impact of government borrowing on private investment, which can offset the positive effects of fiscal policy. Choice B, secondary effect, is a general term that could be used to describe any secondary impacts of fiscal policy on the economy, but it does not specifically refer to the increase in AD caused by expansionary policy. Choice C, spending effect, may be too vague to be the best answer as there are many types of spending effects that could be considered in relation to fiscal policy.

When Expansionary Fiscal Policy Increases Income and Thus Consumer Spending,the