Abstract
The analysis of the modified version of the standard Keynesian model of aggregate demand shows that the change in the average tax rates has a complex impact upon the aggregate demand. Depending upon the marginal propensity of households to consume and the marginal propensity to public purchases, the increase in the average tax rates, generally, can lead both to the decrease and increase in the aggregate demand. As the marginal propensity to purchases is easily regulated, therefore, the government may purposefully use the tax rates both for stimulating and reducing the aggregate demand in the course of selecting its relevant value.
Keywords
Keynesian model of aggregate demand, average tax rate, marginal propensity to consume, marginal propensity to public purchases
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