hello, so ive already asked this question but i dont understant the answer that i was given. This is what I have so far: true or false: "tax cuts directed at higher income individuals will do more to stimulate the economy than those directed to lower income individuals, in the keynesian model." my reasoning with this is that its true? can you explain this to me? wouldnt the economy be stimulated more if it was given to a lower income individual because they are most likely to spend it? ANSWER I WAS GIVEN: Step 1 According to Keynes, the economy will be an unstoppable machine operating at maximum capacity if people did not save something. To allow people to spend more, Keynesians suggested tax savings. The Keynesian model, established by British economist John Maynard Keynes portraying savings as a drain on the economy and thus making deficit spending appear superior. However, unless someone keeps all of his or her savings in cash, which is unusual, savings are invested, either by the person or by the bank holding the money. Step 2 The MPC (marginal propensity to consume) is higher in poorer people than in wealthy people. When an individual earns a higher income, the cost of their basic human needs is a smaller percentage of their total income, and as a result, their average tendency to save is higher than when they earn a lower income. The wealthier classes have a higher median tendency to invest than the poorer classes. Since the tax cuts for the wealthy are targeted at households with lower MPCs and thus have a smaller multiplier effect, they will have little effect on the economy. (this makes me think the oposite of what is said in the next paragraph) Therefore, It is true that the tax cuts for higher-income individuals would boost the economy more than tax cuts for lower-income individuals. Can you explain the last two paragraphs for me? they seem contradictory.
hello, so ive already asked this question but i dont understant the answer that i was given. This is what I have so far:
true or false:
"tax cuts directed at higher income individuals will do more to stimulate the economy than those directed to lower income individuals, in the keynesian model."
my reasoning with this is that its true? can you explain this to me? wouldnt the economy be stimulated more if it was given to a lower income individual because they are most likely to spend it?
According to Keynes, the economy will be an unstoppable machine operating at maximum capacity if people did not save something. To allow people to spend more, Keynesians suggested tax savings. The Keynesian model, established by British economist John Maynard Keynes portraying savings as a drain on the economy and thus making deficit spending appear superior. However, unless someone keeps all of his or her savings in cash, which is unusual, savings are invested, either by the person or by the bank holding the money.
The MPC (marginal propensity to consume) is higher in poorer people than in wealthy people. When an individual earns a higher income, the cost of their basic human needs is a smaller percentage of their total income, and as a result, their average tendency to save is higher than when they earn a lower income. The wealthier classes have a higher median tendency to invest than the poorer classes.
Since the tax cuts for the wealthy are targeted at households with lower MPCs and thus have a smaller multiplier effect, they will have little effect on the economy. (this makes me think the oposite of what is said in the next paragraph)
Therefore, It is true that the tax cuts for higher-income individuals would boost the economy more than tax cuts for lower-income individuals.
Can you explain the last two paragraphs for me? they seem contradictory.
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