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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

According to traditional Keynesian analysis, why does a tax cut have a smaller effect on GDP than a similarly sized increase in government spending? Why might the opposite be the case?

To determine

Tax cuts versus government spending.

Explanation

Traditional Keynesian analysis indicates that increases in government spending are a more potent tool than tax cuts. When the government gives a dollar in tax cuts, then a part of that dollar may be saved rather than spent; this does not contribute to the aggregate demand for goods and services and has little effect on the GDP...

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