can you increase aggregate demand without decreasing interest rates or reducing gov

Discussion in 'Economics' started by morganist, Sep 24, 2009.

  1. can you increase aggregate demand without decreasing interest rates or reducing tax and without increasing gov spending?

    yes. do you want me to tell you how?
  2. aegis


    Some major technological innovation perhaps?
  3. no.
  4. ok here is how.

    You need to maintain or increase aggregate demand. But you do not want cuts or to increase borrowing. Do you want to know how to achieve this.
    Liquidity efficiency.

    Different people have different propensities to consume and save depending on various factors. Income, class, age, sex, culture etc. Depending on a peopleâs propensity to consume more or less of their income is expended which has an effect on aggregate demand The greater the consumption the higher aggregate demand is the lower the consumption the lower aggregate demand is when someone saves money it is referred to as leakage. By taxing the people who have a higher propensity to consume less and the people who have higher propensity to consume more you increase demand without other consequences.

    Therefore by altering who receives income you can control the level of aggregate demand without having to alter interest rates, tax revenue or increase borrowing. Through merely changing who pays what tax rather than the amount required for government expenditure it can alter aggregate demand.

    For example a wealthier person has a propensity to consume of 0.7 and a poorer person has a propensity to consume of 1. Now assume the wealthier person pays Â£100 in tax and the poorer person pays Â£70 in tax each month. If you take Â£15 extra from the wealthier person and deduct Â£15 from the poorer person the tax revenue is the same. However aggregate demand has increased by Â£4.50 without effecting tax revenue.

    but how to implement it. you could have a taxation model that enables it. this is one a wrote.

    here is the tutorial.

    sorry i copy image rather than link first time it should work now.

    tell me what you think.
  5. also i do appreciate altering income can itself alter consumption of individuals however feel that i will not alter that much if the alterations are minor.
  6. Eight


    People think that the current crisis can be fixed over time by people that save money though.. you would be taxing the savers...

    There are other ways to increase the velocity of money.. technology can do that and replacing a tribal or central planned leadership role with a free market is the most dramatic of all possible scenarios in that regard...
  7. i admit there are other ways to do it but can you regulate them and make them temporary. so if you introduce new technology it is not done monthly it might create inflation long term. liquidity efficiency is controllable and it benefits poorer people when it is difficult. i would rather wealthy people who can afford to save are penalised rather than poorer people. with tax cuts poor people are affect same with interest rate alterations. it is least costly option.

    thank you for your feedback though much appreciated.
  8. any chance of feedback on the taxation model. it would be helpful i want to see what you think. it is based on a model i wrote for the czech republic.
  9. That's the old Reagan scheme. Back then it was called "increasing money velocity", different color fur, same beast.

    And it doesn't work unless it's accompanied by credit expansion or large increase in social spending (which is usually just a dressed-up credit expansion in practical terms anyway).
  10. kxvid


    You give the example that a richer person has a propensity to consume 1 paying Â£100 in taxes. Also that a poorer person has a propensity to consume 0.7 paying Â£70 in tax.

    You argue that if you increase taxes on the richer person, and decrease taxes on the poorer person aggregate demand will increase. What makes you think the wealthy person will still consume @ 1 if you increase their taxes? They will naturally have less money to spend.

    It is safe to assume that a poorer person consuming @.7 will increase their consumption if they are taxed Â£15 less. But any increase in aggregate demand due to this increased consumption by the poorer person will be offset by the reduced consumption (due to a Â£15 tax increase) of the richer person. Aggregate demand would likely actually fall under your proposal due to a reduction in wealth concentrations.
    #10     Sep 24, 2009