Ignoring Any Supply-Side Effects, How Does the Magnitude of the Government

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The Answer is The magnitude of the government expenditure multiplier is larger than the magnitude of the tax multiplier. The government expenditure multiplier is larger because a $1 change in government expenditure has an initial effect on aggregate demand of $1. In other words, a $1 increase in government expenditure initially increases aggregate demand by the entire $1. However, a $1 change in taxes does not initially affect aggregate demand by the entire $1. Instead, it affects aggregate demand by less than $1. For instance, a $1 decrease in taxes increases aggregate demand by less than $1. Why? Because part of the $1 decrease in taxes is saved and the amount saved does not increase aggregate demand.

Ignoring Any Supply-Side Effects, How Does the Magnitude of the Government

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