Why Rupert Murdoch s Australian decided to celebrate the fiftieth anniversary of the Korean War by libelling the valour of US troops. Now what this means is that tax cuts will increase total spending which in turn will aggravate the current account deficit and fuel inflation, forcing the Fed to raise rates. Complete Keynesian nonsense. No wonder monetary policy is a mess in much of the world. Let s do this by numbers so simple that even a Gore supporter like Rivlin will be able to understand the reasoning.
All demand curves are downwards sloping.
Each point on the curve will tell you how much will be bought at that quantity of dollars. If the curve moves upwards and to the right more will be demanded at a higher price, and vice versa. It should be obvious, even to Rivlin, that if a tax cut is funded out of reduced expenditure then total spending remains the same. The only thing that has changed is the composition of total demand. If the government compensates for tax cuts by borrowing directly from the public then spending still remains the same, as does its division.