While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than...
While traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes to stimulate the economy, what are some of the reasons why tax cuts might be preferred to increased government spending?
Homework Answers
Tax cuts have several benefits . Firstly , tax cuts increases disposable income which directly increases consumer spending and thus raises aggregate demand in the economy . Corporate tax cuts also increase investment spending . Tax cuts provide incentives to work as people get more income due to less taxes for the same work . This increases productivity in the economy .
On the other hand such goals might not be achieved by government spending . Increased government spending only increases aggregate demand directly by one component . government spending in welfare activities might make people less productive such as unemployment insurances .
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decreases; increases
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