Asked by Colby Hastings on May 02, 2024
Verified
Why might the response of far-sighted consumers reduce the multiplier effect of an increase in government expenditures?
Multiplier Effect
The additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending.
Government Expenditures
The total amount spent by the government for its operations, programs, and services.
- Recognize the potential effects of far-sighted consumer behavior on policy effectiveness.
Verified Answer
ZB
Zachary BrowningMay 07, 2024
Final Answer :
Consumers may recognize that borrowing now to finance expenditures means higher future taxes so they reduce current expenditures in anticipation of higher future taxes.
Learning Objectives
- Recognize the potential effects of far-sighted consumer behavior on policy effectiveness.
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