The tax multiplier negative and smaller in absolute value than the govenment spe

Question

The tax multiplier negative and smaller in absolute value than the govenment spending O an increase in taxes causes aggregate expenditure to shift downwards by an amount that is smaller than the increase in taxes. o an increase in taxes causes aggregate expenditure to shit downwards by an amount that is larger than the increase in taxes. O an increase in government spending causes people to expect higher taxes in the future O a decrease in taxes causes people to expect higher taxes in the future

Explanation / Answer

A is the correct option

Reason

An increase in taxes causes a shift in aggregate expenditure since the multiplier is smaller, the corresponding increase will be smaller compared to government spending.

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