In the Keynesian-cross model, fiscal policy has a multiplying effect on income because fiscal policy:
A)increases the amount of money in the economy.
B)changes income, which changes consumption, which further changes income.
C)is government spending and, therefore, more powerful than private spending.
D)changes the interest rate.

Question

Quizplus · Accepted Answer

In the Keynesian-cross model, an initial change in fiscal policy, such as increased government spending, leads to a change in income, which then affects consumption. This cycle continues, amplifying the initial impact through the multiplier effect.

In the Keynesian-Cross Model, Fiscal Policy Has a Multiplying Effect