Please sort the five arguments below, according to whether they are used by advo
ID: 1165618 • Letter: P
Question
Please sort the five arguments below, according to whether they are used by advocates of the government spending approach or the tax cut approach to fighting recessions Government Spending Approach Tax Cut Approach Consumers usually save part of their income, while the government spends it all. Allows consumers, not politicians, to decide what goods and services are produced. To be effective, tax cuts must be seen as permanent, rather than temporary Government spending will result in higher taxes later If targeted correctly, aggregate supply increases as well as aggregate demandExplanation / Answer
Consumers usually save part of their income while the government spends it all. It is a approach of government spending. Generally during the time of recession people wants to hold money. No body wants to invest or spending their proportion of income. Due to all government spending government wants to stimulate the demand. It can help to the investors about the expectations of the economy.
Next is if targeted correctly, aggregate supply and aggregate demand both rises. Let suppose a tax cut policy has been taken to targeted people or group it will help to induce the demand and from the suppliers side it will increase due to the tax cut in corporate house or tax cut in production. This tax cut correctly will help to tackle with recession.
To be effective tax cut must be permanent not temporary. This approach of tax cutting should be permanent so that there must grow the confidence level of investors. As well as consumer demand also grows. If it is not permanent the change in investment or expectation about the economy.
Government spending actually increases the tax rate later. Whenever there is higher government spending then that has to be met through increase in tax rate in future. But this policy is not much related with tackle with recession.
Allows consumers, not politicians, to decide what goods and services are produced. It means the goods and services will be produced according to demand of the consumers. This is also a decision kind of free government policy and towards market economy. The production and type of goods and services will be determined by people choice.