The estimated size of the multiplier effect for government spending is

Question

Quizplus · Accepted Answer

The multiplier effect for government spending varies depending on the gap between real GDP and potential GDP. It is almost zero if real GDP equals potential GDP (A), smaller if real GDP is close to potential GDP (B), and larger if real GDP is far below potential GDP (C). While not explicitly stated, the logic of the multiplier effect implies it would be minimal or zero if real GDP is far above potential GDP, as the economy would be at or beyond its capacity, making (D) a reasonable inference. Thus, all of the statements (A, B, C, D) are correct, making (E) the correct choice.

The Estimated Size of the Multiplier Effect for Government Spending