Expenditure and tax multipliers are likely to be large
A) if the economy is experiencing deflation.
B) when real interest rates rise rapidly.
C) during severe recessions.
D) if the economy has negative cyclical unemployment.

Question

Quizplus · Accepted Answer

Expenditure and tax multipliers tend to be larger during severe recessions because there is a larger gap between actual and potential output. This means that an increase in government expenditure or a decrease in taxes can have a larger impact on increasing aggregate demand and closing the output gap.

Expenditure and Tax Multipliers Are Likely to Be Large