Question

According to chapter 16, which deals with fiscal policy, a tax reduction can be used as an expansionary fiscal policy tool to expand the economy. Do you believe in a tax reduction for large corporations and the very rich? Can you think of ways in which a tax reduction for the wealthy can actually help the economy? How about the current fiscal stimulus package (The Care Act)? How will affect future government debt?

Answer 1

Most of the fiscal expansion used for enhancing the development of the economy and promotion of the employment opportunities. The expansion of fiscal policy through cutting tax rate and increasing government spending. There is a high level channelization of resources among all over the economy. This distribution will be in both among rich and poor. This tax cuts have different influence over high income people and low income people. Tax cut among high income people will help them to consume invest more. This will improve their standard of living. On the other hand, tax cut among low income group people will increase the level of disposable income. They can consume the goods which is high tax before, but later it is affordable for them. This will attain social welfare and raise the economic growth.
In current period, there is a drastic change in fiscal stimulus package. At present government support is important for every economy. Adoption of efficient stimulus package will help to maintain the up and down nature of the economy. IMF provides high level stimulation packages and high flow of fund to the unanticipated condition. The government expenditure was mainly done through high level borrowings. This will lead to future government debt and it may leads to contraction policies in future. This will affect the economic growth and development also. But the past expansionary polices will induce the production and growth, so this borrowings will be pay back and economy tried to consist in the normal level.