In the Keynesian-cross model with a given MPC 0, the government-expenditure multiplier _____ the tax multiplier.
A)is larger than
B)equals
C)is smaller than
D)is the inverse of the

Question

In the Keynesian-cross model with a given MPC > 0, the government-expenditure multiplier _____ the tax multiplier.
A)is larger than
B)equals
C)is smaller than
D)is the inverse of the

Quizplus · Accepted Answer

In the Keynesian-cross model, the government-expenditure multiplier is larger than the tax multiplier because an increase in government spending directly increases aggregate demand, while a tax cut increases disposable income, which then indirectly affects consumption based on the MPC.

In the Keynesian-Cross Model with a Given MPC > 0