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    I though you had left us!
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    cheers for the rep!
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    Thanks for contributing to my thread sig. Cheers!
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    (part 3)

    Also, some of that 90% money taken to be spent by the government would be applied to I, or Investment, which has it's own values and formulas for real GDP growth. On the whole, it only seems to balance if certain parameters are intentionally ignored, which is why I call it "magic" to some extent.

    Man, this crap is complicated. I'm glad my teacher thinks I'm smart, or else I could be struggling in that class. Whenever we have a discussion topic, he just assigns me 10 bonus points and we don't even talk about the material I present, because he doesn't want me to talk over his head in his own class and hear my questions that he can't answer. He also gives our group project on the GDP of a certain country a seemingly free pass, again because the material I provide is stuff he doesn't even understand.
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    (part 2)

    Wait... no, it doesn't. Because in the formula for real GDP, expressed as C+G+I+(X-M), they are taking 90% money (and I'm using 90% MPC as that is the actual average for the US, according to my teacher) that could be used for C, I, or Net exports (Which is the X-M part), and injecting it into G, but decreasing value from G by having to finance it through deficit.

    Even if Keynes' theory completely pans out, assuming adding to G (government spending) does increase the total economy (which on paper it completely appears to do)... where does the government get this extra to spend? If it comes with a tax hike (or inflation spike), that is a negative tax multiplier, and if they finance it, there are charges on that financed money which doesn't figure into G. So, when does Peter stop robbing Paul in this scenario?
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    If you take the "-" away from the beginning of the equation, yes that is correct. Tax cut multiplier is the Direct Spending multiplier minus one, like I said earlier. It's like you said in your post today, tax cuts are Keynesian (or, at least they figure into Keynesian theory), and they do actually "put" more money into the economy to be spent (by LEAVING it there). Where my confusion comes from is how Keynes decided it was -1. There's no theory anywhere in the book, nor in my professor's brain, that explains it.

    I understand that a government's marginal propensity to save is zero, but that still doesn't explain how the government appropriating money from the economy to inject directly back into the economy is considered a round of spending, because they are removing money that would otherwise be spent.... oh wait, I think I just got it. They are removing money that would have been 90% spent, and are spending 100% of it instead. Ok, it sort of makes sense now.
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    I'm sorry, I haven't taken a math class in ten years so I got a little lazy writing the formula. It's not an inverse value... it should read TAX MULTIPLIER = (1/MPS) -1, not TM= (1/MPS -1). Therefore, TAX MULTIPLIER = DIRECT SPENDING MULTIPLIER -1.

    That's where I'm confused. Even Keynesian theory states a tax cut does some good for the economy, that is the total amount cut is subjected to a multiplier as well... but Keynesian magic states the tax cut multiplier is one whole number less than the direct spending multiplier. That's the part I don't get. Why? Why one whole number? If the MPS is .1 (meaning people spend 90% of all their money on consumption, and save 10%), the direct spending multiplier is 10. The tax cut multiplier is 9.

    My teacher says it's because that's one step out of the spending cycle... but that makes no f*ing sense.
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    I'm sorry, I confused two formulas down below. The multiplier = 1/mps, or 1/1-mpc (which gives you the mps)... not mpc/1x100. Even so, the question still stands.
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    I mean, if spending itself is multiplied every time it changes hands, how is it that keeping it in the economy to be spent is less cycles than it being removed from the economy, probably skimmed, and then put back into the spending cycle? It's like saying you'll have more and more money in your paycheck the more and more I take out of it.

    Don't get me wrong, I'm not an anarcho-free market capitalist, and I see where Keynesian theory actually does work, on paper at least (given that it's out of the treasury, and not the future, where we get the additional spending money), but I don't understand how Keynes justified lower taxes as being one step removed from the economy. On the surface, the entire model just seems to be a way for governments to raise taxes without actually raising taxes - it substitutes real growth of wealth for an artificial deferment of inflation, which is super-duper sneaky in my opinion.
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About Sigfried

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About Sigfried
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I am a lifelong gamer, former software engineer, currently a world traveler and blog writer.

I love to debate and share ideas. I am married, have two cats, and try to cultivate wisdom.

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