Principles of Macroeconomics / Unit 14 MAC 1312 short lesson, about 20 seconds
Taxes Reach the Economy Three Ways
Captions available
The idea
Taxes act on the economy through three channels. They change disposable income and so consumption. They change after-tax profits and so investment. And payroll taxes change the cost of hiring and so employment.
In practice
Each channel enters aggregate demand at a different component.
Where people slip
A tax change can therefore have effects the headline rate does not show.
Your place on the trail
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