Macroeconomics 1st Edition by Campbell McConnell,Stanley Brue,Sean Flynn

Exercise 7

Use Figure 8.4 to explain why the deliberate increase of the standardized budget deficit (resulting from the tax cut) will reduce the size of the actual budget deficit if the fiscal policy succeeds in pushing the economy to its full-employment output of GDP 1. In requesting a tax cut in the early 1960s, President Kennedy said, "It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise tax revenues in the long run is to cut tax rates now." Relate this quotation to your previous answer in this question.