Question

Briefly (with one or two paragraphs) Explain why "Tax financing" and "Deb financing" have similar effect on the spending multiplier?

Answer 1

The brief explanation of this problem is detailed as.......

Both tax financing and debt financing have similar impact on the spending multiplier because both are methods of generating revenue for the government to finance its expenditures/ spending tax financing raises government revenue through tax increments, and while debt financing involves government selling bonds, etc to finance its expenditure.

Hence, the two methods differ in terms of their ways of generation of revenue for the government but have no difference in the way they affect the spending multiplier.