Question

Two economists estimate the government expenditure multiplier and come up with different results. One estimates the multiplier at 0.8​, while the other comes up with an estimate of 1.4. Explain why these estimates are different in terms of the assumptions that each economist is making. A. Compared to the first​ economist, the second economist is assuming a longer time frame for the effects of the increased expenditure to be observed. B. Compared to the first​ economist, the second economist must be assuming either a larger induced increase in​ consumption, a smaller crowding out​ effect, or both. C. Compared to the first​ economist, the second economist must be assuming either a smaller induced increase in​ consumption, a larger crowding out​ effect, or both. D. Unlike the first​ economist, the second economist must be assuming that the government expenditure is devoted to useful projects.

Answer 1

B. Compared to the first​ economist, the second economist must be assuming either a larger induced increase in​ consumption, a smaller crowding out​ effect, or both.

Step-by-step explanation: