Question

Why is the multiplier for spending changes greater than the multiplier for tax changes? What are...

Why is the multiplier for spending changes greater than the multiplier for tax changes? What are the arguments that suggest the expenditure multiplier might be lower than the tax multiplier?

Homework Answers

Answer #1
The spending multiplier is greater than tax multiplier because,Increased government spending will increase overall demand but only a fraction of the increase in disposable income(Savings absorb a portion of any change in taxes)
"The multiplier effect was used as an argument for the efficacy of public spending or tax deduction to stimulate aggregate demand."
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In some cases, multiplier values ​​below one are measured sympathetically. Some types of public spending would increase or consumer spending would otherwise increase. Due to this congestion, the initial increase in costs may be due to an increase in interest rates or price levels.
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