Question

In: Economics

When the economy is in recession, government revenue falls due to a falling tax base. Therefore...

  1. When the economy is in recession, government revenue falls due to a falling tax base. Therefore the proper role of government should be to increase taxes and cut spending so as to balance the Federal budget. Do you agree? Why?
  2. “Money not backed by gold or silver is worthless paper and is a fraud committed against the people of the United States.” Critically evaluate this statement.

Solutions

Expert Solution

When economy is in recession, there will be fall in economic activities, so the tax collections of government is bound to fall. Government intervention is required to correct disequilibrium in economy. Economy must be provided with further fall in taxes and rise in expenditure. there will be increase in government deficit further. It is right policy course of action. But if government goes with policy measures of increasing taxes and reducing expenditure, economy will further suffer the bout of recession or recession will further deepen.

Thus, we are not agree with statement that government must raise the level of taxes.

Since money is not backed by the gold and silvers, thus money does not have any intrinsic value. If economic system fails, paper currency would have no value or it will turn into scrap.

Due to lack of gold and silver availability coupled with rising level of GDP, it was incumbent on part of government, to invent new form of money.

It is called fiat money. it is backed by the sovereign power of government. People have developed trust on government, So money is accepted as medium of exchange and store of value. Hence, it would not be correct to say that money not backed by the gold or silver is fraud committed against the people of the united states.


Related Solutions

When the economy is in recession, government revenue falls due to a falling tax base. Therefore...
When the economy is in recession, government revenue falls due to a falling tax base. Therefore the proper role of government should be to increase taxes and cut spending so as to balance the Federal budget. Do you agree? Why? “Money not backed by gold or silver is worthless paper and is a fraud committed against the people of the United States.” Critically evaluate this statement.
When the economy is in a recession, the government will want to increase output. If the...
When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.7 and the government increases spending by 147, how much will output increase by?
Why do interest rates decrease when the economy falls into a recession? Use both the market...
Why do interest rates decrease when the economy falls into a recession? Use both the market for money and the market for bonds to show your answer. Make sure to label all elements on your graphs and clearly indicate all shifts and their directions.
Show why interest rates decrease when the economy falls into a recession. Use both the market...
Show why interest rates decrease when the economy falls into a recession. Use both the market for money and the market for bonds to show your answer. Make sure to label all elements on your graphs and clearly indicate all shifts and their directions.
Assume that the economy falls into recession. (i.e., output falls below full employment output) and the...
Assume that the economy falls into recession. (i.e., output falls below full employment output) and the Fed describes by buying bonds. Briefly describe the process by which the money supply is affected? What does this do to the Interest rate? Briefly explain the chain of causality of how monetary policy might help affect help move the economy back toward full employment output (That is, how can monetary policy affect AD in the short-run?) Discuss the factors or circumstances that may...
The next time the economy falls into a recession, there will be a spirited debate about...
The next time the economy falls into a recession, there will be a spirited debate about whether the government should try to counteract the downturn, or whether it is better to let the economy run its course. Most likely, there will some action taken to try to improve the economy. Then the debate will turn to what tools the government should use to fight the recession. In this week's discussion we will focus on (1) what role the government should...
Let’s say the economy has fallen into a recession and the inflation rate falls to zero...
Let’s say the economy has fallen into a recession and the inflation rate falls to zero percent. a) What open market operations is the Reserve Bank of Australia likely to engage in? b) Why is the interest elasticity of investment important to the Reserve Bank’s decision regarding interest rates?
The economy is in a recession. The government increases spending in an effort to move the...
The economy is in a recession. The government increases spending in an effort to move the economy toward full employment (Y*). Money demand is interest sensitive and investment interests insensitive. explain each step of the adjustment process, graph the process (show both “the crowing out” and the path –process– the economy will follow). How much crowding out would you expect relative to an economy wherein Money demand is interesting insensitive and investment is interest sensitive and why.
One of the major sources of revenue for the government is Tax. The government spends the...
One of the major sources of revenue for the government is Tax. The government spends the tax that it collected on various activities which include nation building and social welfare of citizens and residents. The government charges tax to individuals and corporates as per the tax provision in the country, but there have been many incidences where the payers have not paid taxes to the government. The country’s tax authority is empowered to implement the tax laws and also penalise...
Governments to get the economy out of recession or cool the economy down when the economy...
Governments to get the economy out of recession or cool the economy down when the economy is overheating often use fiscal policy.   1. What is fiscal policy?   2. How can it be used to get the economy out of recession? 3. How can it be used to get the economy out of the situation where the economy is in an expansionary period where we exceed long run potential?   4. Do both situations result on different impacts on inflation? Why or...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT