Fiscal Policy - the Tax Multiplier

This lesson illustrates how a tax cut of a particular amount will ultimately affect aggregate demand in the economy and therefore total output. Tax cuts are an indirect injection into the macro-economy, meaning that they put money into the pockets of households, but who then get to decide how much of it to spend on goods and services. For this reason, the tax multiplier is generally thought to be smaller than the spending multiplier. What does this mean for fiscal policy-makers? When considering the possible expansionary effects of a particular tax cut or government spending package, it should be acknowledged that tax cuts, may not provide the level of stimulus as government spending, since some of a tax cut will be saved rather than spent.
Want to learn more about economics, or just be ready for an upcoming quiz, test or end of year exam? Jason Welker is available for tutoring, IB internal assessment and extended essay support, and other services to support economics students and teachers. Learn more here! econclassroom.c...

[@lifewithdylan]

Intro made me want to go clubbing....

[@jenniferoliphant779]

This really helping and made a lot of sense.

[@JasonWelker]

Hey Jonny. Now problem. Glad I could be of assistance! Good to see you're still studying Econ!

[@CMJONO]

Classic, I learnt about this from Mr.Welker and Mr.Hauet, 3 1/2 years on I google this for someone else and the first result in google is my teachers video :D lool. Thanks again Mr.Welker :D

[@armstrongq.zehdee6918]

This really refresh my memory.

[@NS-o9x]

Is there a video on Balanced budget multiplier? Can't find it. Need it ASAP.

[@theson22788]

i wish my professor would be as good as you sir. haizz suffering right now

[@joshuamutua7236]

the tutorials are very nice

[@karinachairez7325]

This saved my life

[@1975alcides]

i love your lessons but i wouldlike to know the name of the song that is played when your lesson start

[@centfifty8127]

thanks, very helpful!

[@seyedmostafahosseinideldoo2044]

Ciao Jason
How can I calculate Tax multiplier in input output table or social accounting matrix?

[@tphillipoff]

How do we know that MPC/MPS always remains constant with the level of income? It seems to me that's a major flaw in the reasoning.

[@WheatleyOS]

This video only confused me. He found different results for the same question using two different methods. In once scenario he got the increase in aggregate demand to be 400 million USD, and in the other, 667 million USD.... How does that make any sense?? ;-;
And then for some reason at 4:35 he starts to multiply 400 million USD by 0.4 AGAIN, which made even less sense..

[@JasonWelker]

In the first case I was measuring the size of an increase in government spending required to achieve a $1b increase in GDP using the spending multiplier. That turned out to be an increase of $400m.
In the second case I was measuring the size of a tax cut needed to achieve the same $1b increase in GDP using the tax multiplier. That turned out to be $667m.
What I'm doing at 4:35 is explaining HOW the multiplier effect works as the initial change in spending is circulated through the economy based on the size of the marginal propensity to consume.

[@WheatleyOS]

***** oh, ok, that makes a lot more sense, that just means at 3:14 he meant "government spending" not "taxes" for what he was calculating

[@vasilbachovski2794]

t= - 4 , and the T=AD/-t so it goes T=500/- (-4) the taxes will increase

[@88volg]

what is ib economics ?

[@GradyMilligan]

7:24 boom

[@maddiesophresh]

omg i did not understand :(