Answer to Question #313187 in Macroeconomics for captain nyagah

Question

Discuss the effects of lower taxes in the Keynesian model on the general equilibrium.

Answer 1

In the Keynesian cross, the tax decrease shifts the planned expenditure function down by MPC x ∆T. The amount by which Y increases is given by the product of the tax multiplier and the decrease in taxes: ∆Y = [-MPC/(1-MPC)]∆T.