Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 18, Problem 6QP
To determine
Explain whether all economists agree to the statement, if not why.
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Government is considering a policy change to stimulate the economy by encouraging private consumption by reducing
sales taxes. The loss of tax revenue will be made up by increasing taxes on corporate profits and excess savings. What are
the short- and long-term effects of such a change?
Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession?
a. A cut in the marginal tax rate increases the incentives to find a job and work longer hours.
b. Consumers will save a portion of a tax cut.
c. The government may use the increase in expenditures on projects with little value, particularly, if it wishes to respond quickly.
d. There is no evidence that tax cuts have been followed by increases in economic growth.
Consider the economy of Canada. Its households spend 55% of increases in
their income and saves 45 %. There are no taxes and no foreign trade.
Currently, Canada has a recessionary gap, the governments aim is to get
actual output to increase by 220 billion dollars. How much of a tax cut do
they need to have to achieve the overall increase in output of 220 billion
dollars?
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