While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy, what are some of the reasons why tax cuts might be preferred to increased government spending?
First, tax cuts can influence both aggregate demand and aggregate supply, allowing for an increase in the production of goods and services without putting upward pressure on the rate of inflation. Second, increased government spending requires increased borrowing to finance it, likely leading to higher taxes in the future. As a result, consumers will likely reduce spending today, suggesting that government-spending multipliers may be smaller than is conventionally believed. Third, tax cuts have the advantage of decentralizing spending decisions. Households spend their disposable income on things they value and firms spend their investment dollars on projects they expect to be profitable. By contrast, increases in government spending may end up buying things of little public value.
You might also like to view...
Over the past 100 years, real GDP per person in the United States has grown at an average of ________ percent a year
A) 1 B) 2 C) 3 D) 4
Because the United States was the reserve-currency country under the Bretton Woods system, it could run large balance of payments ________ without ________ significant amounts of international reserves
A) deficits; losing B) deficits; gaining C) surpluses; losing D) surpluses; gaining
The best definition of economics is
A) how choices are made under conditions of scarcity. B) how money is used. C) how goods and services are produced. D) how businesses maximize profits.
Why is plowback the overwhelming favorite among choices of sources of funds for financing corporate investment?
What will be an ideal response?