ECONOMICS
FISCAL POLICY
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
less than
|
|
|
equal to
|
|
|
not comparable to
|
|
|
greater than
|
|
|
greater than for expansionary policy and less than for contractionary policy
|
Detailed explanation-1: -The spending multiplier is always 1 greater than the tax multiplier because with taxes some of the initial impact of the tax is saved, which is not true of the spending multiplier.
Detailed explanation-2: -As explained in the text, the multiplier for a change in taxes is smaller than the multiplier for a change in government spending, because taxation affects aggregate expenditure only to the extent that people spend their tax cut or pay their increased taxes by reducing consumption.
Detailed explanation-3: -The tax multiplier is always one less in magnitude than the expenditure multiplier, and it is always a negative number.
Detailed explanation-4: -If the value is bigger than 1, this means that higher public spending brings about domestic private consumption or investment and increased state activity does not crowd out private economic activity.