Question

In: Economics

If a nation’s economy is sliding into recession, and you are an economist, would you recommend...

If a nation’s economy is sliding into recession, and you are an economist, would you recommend that the government cut taxes and then make up for the drop in taxes collected by the government by cutting government spending? If not, what would you recommend? Explain your answer.

Solutions

Expert Solution

During the recession, people have low purchasing power as having less money in hand and this phase is characterized by low wages and increased unemployment.

As an Economist, I would recommend the following -

1. The cutting of taxes as that would increase the money in hand, hence the households will have more to spend for consumption hence inducing a multiplier effect on production and investment.

2. The government cannot reduce spending but in contrast, has to increase its spending especially on public works so that larger numbers get employed, hence the wages will be used for consumption hence increasing aggregate demand which will further as stated above induce a multiplier effect.

3. To ease out the trade so as to increase exports and reduce imports drastically which can form a portion of governement revenue which will fall due to cut in taxes.

During this phase, the government may have to run on a budget deficit and will have to meet the needs by borrowing from external sources. When the economy recovers the government can go back to its pre recession tax structure.


Related Solutions

Suppose a developed nation’s economy is showing early signs of a recession. This comes despite fiscal...
Suppose a developed nation’s economy is showing early signs of a recession. This comes despite fiscal policymakers having implemented a significant tax cut (i.e., expansionary fiscal policy) one year earlier. Since this expansionary policy was implemented, inflation has been rising so the central bank has been taking steps to reduce it back to its pre-fiscal policy level (but not lower). Using the language of the AD/AS model, identify 2 possible causes for the recession, given the facts described above and...
As a Keynesian economist, what would you do for the current U.S. economy?
As a Keynesian economist, what would you do for the current U.S. economy?
An economist would recommend that the Bank of Canada change the interest rate for borrowed money...
An economist would recommend that the Bank of Canada change the interest rate for borrowed money if the average annual inflation rate is less than 2.15%. Based on a sample from the past 21 years, the average annual inflation rate was 1.87%, with a standard deviation of 0.67%. Assume the population is approximately normally distributed. (a) [1 mark] Define the parameter you are testing. (b) [1 mark] State the null hypothesis and alternative hypothesis you would use to test whether...
4. An economist would recommend that the Bank of Canada change the interest rate for borrowed...
4. An economist would recommend that the Bank of Canada change the interest rate for borrowed money if the average annual inflation rate is less than 2.15%. Based on a sample from the past 21 years, the average annual inflation rate was 1.87%, with a standard deviation of 0.67%. Assume the population is approximately normally distributed. (a) [1 mark] Define the parameter you are testing. (b) [1 mark] State the null hypothesis and alternative hypothesis you would use to test...
Frightened by the recession and the credit crisis that produced it, the nation’s mainstream economists are...
Frightened by the recession and the credit crisis that produced it, the nation’s mainstream economists are embracing public spending to repair the damage — even those who have long resisted a significant government role in a market system. But there is not much agreement yet on what type of spending would produce the best results, or what mix of spending and tax cuts. “We have spent so many years thinking that discretionary fiscal policy was a bad idea, that we...
Suppose the Fed would like to stimulate the economy that is In a state of recession....
Suppose the Fed would like to stimulate the economy that is In a state of recession. Discuss what are the tools that the Fed would use to stimulate the economy and what will be the impact on the different variables such as the GDP, the Investment, Consumption , level of price ect .Show your work using graphical analysis.
As a classical economist or a Keynesian economist, what would you do for the current U.S....
As a classical economist or a Keynesian economist, what would you do for the current U.S. economy?
If you were counseling the president of a country with a developing economy, would you recommend placing restrictions on investments from foreigners?
 If you were counseling the president of a country with a developing economy, would you recommend placing restrictions on investments from foreigners?
Suppose you had been able to set our nation’s economic policies during the recession of 2001....
Suppose you had been able to set our nation’s economic policies during the recession of 2001. You are a Legislator and you need to select the best Fiscal Policy tool to get the economy out of the current Recessionary Gap. From the list of policy options below identify THREE policies you would vote for and explain why those two will be the most effective at creating jobs or generating spending. Also, identify THREE policies you would vote against and explain...
As an economy recovers from a recession, what policies would a central bank undertake if it...
As an economy recovers from a recession, what policies would a central bank undertake if it is more "hawkish"? What are the benefits of these policies? What are the drawbacks? (Use the AS/AD model )
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT