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Note that when people get more income from a tax break, not all of that income is spent. Some of it is saved and this
Note that when people get more income from a tax break, not all of that income is spent. Some of it is saved and this does not go back into the economy to fuel output. That is why the government spending multiplier has a bigger impact on output and unemployment than the tax cut multiplier. Can you take a look at the two multiplier formulas and explain the role of the MPS in them? (Marginal Propensity to Save).
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