Question

An economist who favors smaller government would recommend:

A. tax cuts during recession and reductions in government spending during inflation.
B. tax increases during recession and tax cuts during inflation.
C. tax cuts during recession and tax increases during inflation.
D. increases in government spending during recession and tax increases during inflation.

Answer 1

The correct answer to the following question is option A) tax cuts during recession and reductions in the government spending during the inflation.

Step-by-step explanation:

An economist would want government to increase their spending in times of recession and cut the taxes also , so that there is an increase in the money supply in the economy and cost of borrowing is less and people are spending and investing more.

While in the times of inflation , economist would want government to decrease the money supply in economy and this would be done by decreasing the government spending and increasing the taxes.

Answer 2

The correct answer is option A.

Step-by-step explanation:

In the time of recession expansionary policy is required to boost the economy. An expansionary fiscal policy such as a reduction in tax will be helpful. A tax cut will cause an increase in disposable income. This will cause aggregate demand to rise. Consequently, output and employment will increase.

Similarly, in times of inflation, a contractionary policy will be required to eliminate inflationary pressures. A decrease in government spending would lead to a decrease in aggregate demand. This will cause the price level to get reduced.

Thus an economist would recommend tax cuts in case of recession and reduction in government spending in case of inflation.