if the government cuts taxes in period 1 and cuts government spending in period 2 - this will increase the disposable income of the consumers - won't this increase consumption for consumers having an ambiguous effect on private saving. this is because if consumption is a normal good - increasing the income - positive income effect. My question is for some reason if consumer' disposable income increases - doesnn't this mean consumption must increase - whether it increases more/ enough to neutralise the tax cut effect is debatable and situation dependent - but surely there is an ambiguous effect on private saving for this reason
if the government cuts taxes in period 1 and cuts government spending in period 2 - this will increase the disposable income of the consumers - won't this increase consumption for consumers having an ambiguous effect on private saving. this is because if consumption is a normal good - increasing the income - positive income effect. My question is for some reason if consumer' disposable income increases - doesnn't this mean consumption must increase - whether it increases more/ enough to neutralise the tax cut effect is debatable and situation dependent - but surely there is an ambiguous effect on private saving for this reason
Chapter9: Aggregate Demand
Section: Chapter Questions
Problem 1.1P
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Question
if the government cuts taxes in period 1 and cuts government spending in period 2 - this will increase the disposable income of the consumers - won't this increase consumption for consumers having an ambiguous effect on private saving. this is because if consumption is a normal good - increasing the income - positive income effect.
My question is for some reason if consumer' disposable income increases - doesnn't this mean consumption must increase - whether it increases more/ enough to neutralise the tax cut effect is debatable and situation dependent - but surely there is an ambiguous effect on private saving for this reason
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