In the Keynesian-cross model with a given MPC, the government-expenditure multiplier ______ the tax multiplier.
A) is larger than
B) equals
C) is smaller than
D) is the inverse of the

Question

Quizplus · Accepted Answer

The government-expenditure multiplier in the Keynesian-cross model is larger than the tax multiplier because government expenditure directly increases aggregate demand, whereas taxes reduce disposable income and therefore indirectly reduce aggregate demand through the MPC. Therefore, a given change in government expenditure will have a larger impact on output and income compared to a given change in taxes.

In the Keynesian-Cross Model with a Given MPC, the Government-Expenditure