Wait: Tax Cuts are Keynesian?
I was reading an older tract about economic policy, when I ran into this bit of trivia. OK, this is how I understand it. GNP = C + I + G. So, if GNP is below full employment, increase to G (gov’t spending) to increase total output. It was pointed out that cutting taxes, while keeping G constant, had the same effect. Taxpayers, with their increase $$$, will either save/invest (increase I) and/or increase spending/consumption (increase C). So, if tax cuts work (there has to be something wrong with this logic), the “stimulus” package will also increase economic output by increasing G, just not as efficiently. Huh?