The effect of a tax multiplier on aggregate demand is larger than that of the government spending multiplier.

Question

Quizplus · Accepted Answer

The government spending multiplier typically has a larger effect on aggregate demand than the tax multiplier because every dollar of government spending directly increases aggregate demand by the full amount, while tax cuts increase aggregate demand by only a portion of the amount, depending on the marginal propensity to consume.

The Effect of a Tax Multiplier on Aggregate Demand Is