Question

1. A decrease in tax receipts in a recession
2. Additional expenditure to upgrade highways (please explain it as it's 8 marks each and ASAP)

Answer 1

A decrease in tax receipts during recession leads to have an increase in money supply in the economy as people has to pay less tax they will have more money to spend thus economy will face an increase in consumption, demand thus agg demand will increase with an inflationary pressure in the economy which will help the economy to recover from recession . Similarly if additional expenditure is used to upgrade the highways that will actually increase govt expenditure , employment will increase along with all of these invesment and consmption will increase .All together agg demand of the economy will increase with inflationary pressure. So we can comment that both of these two measures help the economy recover from recession and the economy faces an inflation.