What tends to make the size of a shift in aggregate demand resulting from a tax change smaller than otherwise?
A) multiplier effect
B) crowding-out effect
C) catch-up effect
D) Fisher effect

Question

Quizplus · Accepted Answer

The crowding-out effect tends to make the size of a shift in aggregate demand resulting from a tax change smaller than otherwise. This effect occurs because an increase in government borrowing to finance a tax cut crowds out private investment, which reduces the overall impact on aggregate demand. The multiplier effect, catch-up effect, and Fisher effect can all amplify the size of a shift in aggregate demand resulting from a tax change.

What Tends to Make the Size of a Shift in Aggregate