Question

hoose the statement that is incorrect. A. The consensus is that the​ crowding-out effect is strong enough to make the government expenditure multiplier less than 1. B. The government expenditure multiplier is the quantitative effect of a change in government expenditure on real GDP. C. The tax multiplier is the quantitative effect of a change in taxes on real GDP. D. The​ demand-side effects of a tax cut are likely to be larger than an equivalent increase in government expenditure

Answer 1

Answer: D. The​ demand-side effects of a tax cut are likely to be larger than an equivalent increase in government expenditure

Step-by-step explanation:

There is now a consensus amongst economists that an increase in Government spending will have larger demand-side effects than a tax cut. This is because Government spending goes directly into the economy and stimulates growth through the ripple effect that it has that will see money multiplied.

Tax cuts on the other hand are only effective if consumers either consume the tax savings or invest them. While they will do this for most of the savings, there is a high probability that they will save some of them instead of spending them.