HomeQuestionsEconomicsSpending and Tax Multipliers
📚 Learning Guide
Spending and Tax Multipliers
medium

In Keynesian economics, the impact of an increase in government spending on aggregate demand can be assessed using the __________, which is calculated as 1 divided by the marginal propensity to save (MPS).

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

Spending multiplier

B

Tax multiplier

C

Investment multiplier

D

Government multiplier

Understanding the Answer

Let's break down why this is correct

Answer

In Keynesian economics, when the government increases its spending, it can boost the overall demand for goods and services in the economy. This effect is measured using the spending multiplier, which is calculated as 1 divided by the marginal propensity to save (MPS). The marginal propensity to save is the portion of additional income that people save rather than spend. For example, if the MPS is 0. 2, meaning people save 20% of any extra income, the spending multiplier would be 1 divided by 0.

Detailed Explanation

The spending multiplier shows how much total demand increases when the government spends money. Other options are incorrect because Some might think the tax multiplier is similar, but it focuses on tax changes, not direct spending; The investment multiplier relates to private investments, not government spending.

Key Concepts

Spending and Tax Multipliers
Aggregate Demand
Fiscal Policy
Topic

Spending and Tax Multipliers

Difficulty

medium level question

Cognitive Level

understand

Ready to Master More Topics?

Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.

Start Learning with SeekhExplore More Spending and Tax Multipliers Questions