Tax Cuts and the Economy
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...Abel, Bernanke, & Croushore, 2008). An expansionary fiscal policy is anything that increases the size of the government budget deficit G-T, i.e. either decreasing T or increasing G (Abel, Bernanke, & Croushore, 2008). According to the Keynesians, a tax cut helps stimulate the economy via the aggregate demand channel. Aggregate demand is given by: AD=C+I+G+(X-M) A decrease in taxes results in an increment in the disposable income that causes an increase in consumption. This increase in C... ?Running Head: Tax Cuts and the Economy Tax Cuts and the Economy [Institute’s Tax Cuts and the Economy In order to revive the economy, one path that the government can take is that of an expansionary fiscal policy...