Principles of Macroeconomics / Unit 14 MAC 1317 short lesson, about 20 seconds
A Spending Change Moves More
Captions available
The idea
An equal-sized spending change and tax change do not move output equally. Government purchases enter demand in full, while a tax cut reaches households as income and only a fraction is spent.
In practice
Unit nine worked this: the ratio between the two effects is the propensity to consume.
Where people slip
Transfer payments behave like tax cuts here, for the same reason.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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