A fiscal multiplier effect occurs when:
A) the change in total spending due to a fiscal policy action has an impact on GDP that is larger than the change in government spending.
B) the change in total spending due to a fiscal policy action is larger than the resulting change in GDP.
C) total government spending rises more rapidly than GDP without specific intervention by policymakers.
D) a change in total spending due to a fiscal policy action is increased each year to have a progressively larger and larger impact on GDP.

Question

Quizplus · Accepted Answer

The fiscal multiplier effect refers to the phenomenon where an initial change in spending (such as government spending) leads to a larger change in GDP. This happens because the initial spending increases income for some people, who then spend more, thereby increasing income for others, and so on, amplifying the initial impact on the economy.

A Fiscal Multiplier Effect Occurs When