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Expansionary Fiscal Policy: A Case Study

297 Words2 Pages

Here’s why, the multiplier effect determines the effectiveness of expansionary fiscal policy. Thus, if government spending increase, then the total income increases. When total income increase, consumption increases, when consumption increases total income increases further; as consumption is a factor of total income this pattern is carried forward. This creates a multiplier effect that increase government spending's, and the impact on income is much bigger than its initial increase. Question 2)- What is the difference between government expenditures and government purchases? How do the two variables differ in terms of their effect on GDP? Purchases are the items bought; expenditures are the finances used for any outgoing transaction “the

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