Contrast “supply-side” economics with “demand-side” fiscal policy.
What will be an ideal response?
“Supply-side” economics advocates the use of government tax or spending policies to alter the supply schedule, that is, the production side of the economy. Tax reductions may have an expansionary effect on aggregate supply as well as aggregate demand. Some economists argue that as taxes are cut, savings and investment will increase. Also tax cuts could be aimed specifically at encouraging business investment such as investment tax credits. “Supply-side” economists also argue that tax increases can reduce tax revenues rather than increasing them due to a leftward shift in the aggregate supply curve which causes a decrease in domestic output.
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When a tax on a good starts small and is gradually increased, tax revenue will
a. rise b. fall c. first rise and then fall d. first fall and then rise e. do none of the above
When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____
Fill in the blank(s) with correct word