Why might politicians prefer government spending increases instead of tax cuts to increase aggregate demand?
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tax multipliers are larger than government spending multipliers |
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government spending multipliers are larger than tax multipliers |
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politicians can direct government spending to their supporters |
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politicians can direct tax cuts to their supporters |
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government spending multipliers are larger than tax multipliers and politicians can direct government spending to their supporters |
First we have to look at the equation for the Simple-Keynesian-Model.
Where-Y is the Aggregate-national-income
C is the marginal-propensity-to-consume (0<C<1)
T is the lump-sum-tax
I is the investment-expenditure
G is the government-expenditure
Step by step
Solved in 2 steps
