Question

Fiscal Policy

1. When responding to a recession, Congress faces two choices about its policy response--change taxes or change spending. If you support a large federal government, which policy would your endorse? Explain

2. In the Budget Challenge, you had an opportunity to increase or decrease taxes. What changes did you select? Who is helped or harmed by the changes that you proposed? How did the overall debt change as a result of your proposed changes?

Answer 1

FISCAL POLICY :

Fiscal policy refers to the use of government Spending and Tax policies to influence economic conditions, including demand for goods and services , employement , inflation and economic growth.

1) In times of recession , congress faces two choices about its policy response -

change taxes or change spending are the two remedies to boost aggeragate demand , which in turn increases output and emolyement in the economy . and also the government increases spending reduces taxes or combination of both

In recession,A government spending is a good sign and consumer may reduce spending leading to an increase in private sector saving, the increased government spending may create a multiplier effect. if government spending more causes the unemployed to gain jobs. then,they will have some more income to spendleading to a further to a further increase in aggregate demand.

About to change in taxes - In times of recession helps to low spending may make up for the entire output gap and also close recessionary gaps by decreasing income taxes, which increases aggregate demand and real gdp, which in turn increases prices . The impact on demand , Tax cuts boost demand by increasing disposable income and by encourasing bussiness to hire and invest more. " A federal government is the combination of departmental branches would endorse the encourage SPENDINGS to stimulate the economy."

2)In case of recession, when revenue falls while expenditure rise thereby creating a deficit.in order to balance the budget , government must raise more revenue ( by increasing taxes ) and cut expenditure . these actions will lower the disposable income. a budget deficit implies lower taxes and increased government spending , this will increase and may higher Real GDP and Inflation.

when the government experience lower revenue (by decreasing taxes), disposable income increases, it may leads higher demand and increased GDP, so, here the government can lncreases taxes and keep spending constant or decease spending and keep taxes constant.,

when a recession hits" prevailing logic" is lower intrest encourages the borrowings and spending , which also stimulates the economy.