Question

4. The recent tax cuts are the type of policy that typically used to stimulate an economy during a recession, but they have been implemented during an expansion. Make two arguments (using narrative and graphs, both), one in support of the policy and one against it. Use economic reasoning in your answers.

Answer 1

I understand the concern but at the point when an economy is in a recession, expansionary fiscal policy is all together. Typically this type of fiscal policy brings about expanded government spending as well as lower charges. A recession results in a recessionary gap implying that aggregate demand (ie, GDP) is at a level lower than it would be in a full work circumstance. With a specific end goal to close this gap, a legislature will regularly build their spending which will straightforwardly expand the aggregate demand curve (since government spending makes interest for products and ventures). In the meantime, the legislature may cut duties, which will in a roundabout way influence the demand curve bend by taking into account customers to have more cash available to them to devour and contribute. The activities of this expansionary monetary arrangement would bring about a move of the aggregate demand curve bend to one side, which would come about shutting the recessionary gap and helping an economy develop.

Therefore, Tax rate cuts at time of recession in order to close the recessionary gap and that is only called an expansion.