The government of an economy has increased its spending and taxes by the same amount. What...
The government of an economy has increased its spending and taxes by the same amount. What is the effect on investment?
Homework Answers
When Government spending increases it classifies itself as an expansionary fiscal policy however when it increases the taxes by same magnitude it classifies as contractionary fiscal policy albeit with higher veracity and velocity as tax increases leads to tax buoyancy and thus investments from public rise to save on taxes. Had the taxesbeen lowered it would put breaks on investment cycle as tax outgo decreases substantially and people have little incentive for investment into financial products specifically.
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The government of an economy has increased its spending and
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