What Are the Multiplier Effect and the Crowding Out Effect

question 127

Essay

What are the multiplier effect and the crowding out effect? Using an AD-AS diagram, contrast the implications for fiscal policy of multiplier effects with those of crowding out.

---

Definitions:

Formal Economy

An economy that is taxed and monitored by the government and is included within a nation's gross national product; opposed to the informal economy.

Gig Economy

An economic sector consisting of temporary, flexible jobs often facilitated by digital platforms where companies operate with independent workers for short-term engagements.

Social Standing

The position or rank of a person or group within the hierarchical social structure of a society.

Egalitarian Relationship

A relationship characterized by equality, where all participants have equal rights and opportunities without any form of discrimination or dominance.