An increase in deficit spending tends to raise interest rates, thereby resulting in a multiplier effect that is higher than would be associated with an equivalent increase in consumption spending.

Question

Quizplus · Accepted Answer

An increase in deficit spending can lead to higher interest rates, which may crowd out private investment, potentially reducing the multiplier effect compared to an equivalent increase in consumption spending, which directly boosts demand.

An Increase in Deficit Spending Tends to Raise Interest Rates