When expansionary fiscal policy subsequently increases income and consumer spending,the subsequent increase in AD is called the _____ effect.
A) expansionary
B) secondary
C) multiplier
D) crowding out

Question

Quizplus · Accepted Answer

The subsequent increase in AD due to expansionary fiscal policy is called the multiplier effect. This is because the initial increase in government spending results in an increase in income and consumption, which in turn leads to further rounds of spending and income. Thus, the overall effect is much larger than the initial increase in government spending, creating a multiplier effect.

When Expansionary Fiscal Policy Subsequently Increases Income and Consumer Spending,the