Question

1. What are your recommendations for real government spending (increase, decrease, or keep relatively unchanged)? Why?

2. What are your recommendations for taxes (increase, decrease, or keep relatively unchanged)? Why?

3. Are your tax and spending policies consistent with your policy recommendation in Question 1? Explain.

4. At a less macro level, name three specific categories of government spending (G) that you think should be changed, consistent with your recommendation in Question 1. Do not include transfer payments, only categories of government purchases of goods or services.

a. For each category of spending, explain whether the spending should be increased or decreased

b. Explain why each has been chosen.

5. At a less macro level, name a specific change in the tax policy and explain why it should be enacted to help accomplish the policy recommendation in Question 2.

Answer 1

Answer 1;

Real government spending should be increased in the economy as it leads to increase in long term economic growth rate of the country. Thus, increases overall GDP growth rate of the country.

Answer 2:

In the current scenario as the economy is recovering and aggregate demand has paced up, taxes should be kept relatively constant. This is because economy is on the path of recovery and further decrease in taxes might lead to increase in inflation rate in the economy.

Answer 3:

Yes, currently in the economy government spending is increasing and taxes have remained relatively stable.

Answer 4:

There are mainly two types of government spending in the economy, revenue expenditure and capital expenditure. Capital expenditure mainly includes expenditure on infrastructural development which leads to increase in the economic growth in the long run. Revenue expenditure is non productive in nature and thus should be reduced. Thus, in order to ensure long term economic growth rate of the country capital expenditure in the economy should be increased.