Would it be more likely for the federal government to increase taxes or decrease spending?

Solutions

Expert Solution

It will be more likely for the federal government to increase taxes rather than decrease spending. The main reason for this that the Taxes charged by the federal government are progressive in nature i.e. people who earn more pay higher taxes and government spending help increase the income of the people at all levels.

The cut in taxes will only benefit the people who are paying them. They are the people with higher income. We all know as the income rises the consumption in proportion to income decreases and saving rises. If the government is allowing a tax cut at this level it will only increase the saving and will not have much effect on increasing the demand in the economy. Similarly, a higher tax will not affect consumption more so the government can raise the taxes.

But, if the government increases the spending or not decrease the spending, they will be actually creating demand in the economy which will benefit everyone across the economy. So, it is more likely for the federal government to increase taxes and not decrease the spending.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

When in a recession a government has the option to increase government spending or decrease taxes...

When in a recession a government has the option to increase government spending or decrease taxes to stimulate the economy. Discuss which piece of GDP is being targeted when each is used. Explain what happened in 2008, what went wrong? and what are some steps that could have been taken to avoid the recession of 2008?

The Federal Reserve uses monetary policy to print money. create money. increase taxes. increase government spending....

The Federal Reserve uses monetary policy to print money. create money. increase taxes. increase government spending. force banks to loan money.

By how much would the government spending need to increase to prevent the $300mil decrease in output?

Imagine that the US economy suddenly falls into the recession and the GDP is forecasted to decrease by $300mil. We know that the propensity to consume (c1) is 0.6. The government wants to fight the recession and it is considering either a massive spending boost or a new tax reformQuestion: By how much would the government spending need to increase to prevent the $300mil decrease in output?(Report your answer in millions. For example, if your answer is $550mil, write down...

Suppose the president was given the authority to increase or decrease federal spending by as much...

Suppose the president was given the authority to increase or decrease federal spending by as much as $100 billion in order to stabilize economic activity. Do you think this would tend to make the economy more or less stable?

A decrease in government purchases, an increase in net taxes, or some combination of the two...

A decrease in government purchases, an increase in net taxes, or some combination of the two is designed to: Select one: a. shift the economy's aggregate demand curve inward b. result in no change in the economy's price level c. move the economy to potential output without the resulting inflation d. all of the above e. a. and c.

Lets say the government decides to decrease taxes. This leads to an increase in consumption because households have more disposable income.

10. Taxes and Consumption Lets say the government decides to decrease taxes. This leads to an increase in consumption because households have more disposable income. How would you represent this tax decrease in an aggregate demand-supply curve? There is no change in aggregate demand. The aggregate demand curve shifts to the right. The aggregate demand curve shifts to the left. We cannot be sure.

Question 3: Suppose federal government decreases taxes by (ΔT= 10 million) and increases government spending by...

Question 3: Suppose federal government decreases taxes by (ΔT= 10 million) and increases government spending by (ΔG = 20 million), as a result output is changed by (ΔY). a. (10 points) Assuming that the Federal reserve changes money supply such that the interest rate stays constant and marginal propensity to consume is MPC= 0.6. What is the change in output (ΔY)? What is ΔY ? What is ΔY? Show your work. ΔT ΔG b. (10 points) If the fed does...

The federal government currently taxes the increase in the value of share of stock when they...

The federal government currently taxes the increase in the value of share of stock when they are sold. This is called the capital gains tax. Explain why, if the government reduced the tax rate on capital gains, it could actually receive more total revenue. In your answer, carefully distinguish between tax rates and tax revenue.

1. Which of the two taxes is likely to raise more money for the government and...

1. Which of the two taxes is likely to raise more money for the government and why? A. The cigarette tax, because cigarettes are more expensive than most other tobacco products. B. The cigarette tax, because people get addicted to cigarettes and are willing to pay the tax. C. The tobacco tax, since people will keep buying tobacco anyway and you can reap the tax rewards. D. The tobacco tax, because it covers a much broader variety of products to...

Automatic stabilizers are changes in taxes or government spending that decrease aggregate demand without requiring policymakers...

Automatic stabilizers are changes in taxes or government spending that decrease aggregate demand without requiring policymakers to act when the economy is in an expansionary boom that is causing inflation. Select one: True False If there is no change in the unemployment compensation program, then the total amount of benefits paid to participants in the program will fall during economic expansions and rise during recessions. Select one: True False Critics of stabilization policy argue that the policy can be a...

Subjects