Question

The multiplier effect of changes in government transfers is: greater than the multiplier effect of a change in government spending. impossible to determine. less than the multiplier effect of a change in government spending. zero because transfer payments do not affect aggregate demand.

Answer 1

Answer: less than the multiplier effect of a change in government spending.

Explanation:

The multiplier effect of government transfers refers to the measure by which the aggregate demand will increase by as a result of government transfers increasing.

This multiplier is less than the multiplier effect of a change in government spending. This is because government spending affects more people in the economy as it targets both companies and consumers. Government transfers on the other hand, target only welfare and unemployment payments amongst others so it cannot have the same effect as government spending.