Macroeconomics (1 Viewer)

[tezza23]

Does any1 have any idea or any good sites to find info about this Macroeconomics question:

Why does a $1 tax cut have a smaller multiplier effect than a $! increase in government spending?

If you know, please help =)

Cheers
Terry

 

[Zarathustra]

$1 of government spending is $1 of expenditure whereas a $1 tax cut will lead to $1*(amount spent), so it will be less expenditure regardless of what the multiplier is...

http://en.wikipedia.org/wiki/Average_propensity_to_consume

http://en.wikipedia.org/wiki/Marginal_propensity_to_consume