Question

In the united states, the government uses fiscal policies to affect conditions in the economy. identify which fiscal policy would be best suited for each goal.

A. end a recession goal:
B. reduce tax rates goal:
C. lower federal spending goal:
D. increase tax revenue

1. slow economic growth
2. encourage economic growth

Answer 1

Expansionary fiscal policy, including increasing government spending or reducing tax rates, is suited to end a recession and encourage economic growth. Conversely, contractionary fiscal policy, like lowering federal spending or increasing tax rates, is used to slow economic growth and manage inflation.

Step-by-step explanation:

In the United States, the federal government uses fiscal policy as a tool to influence the economy's conditions, especially through the manipulation of aggregate demand using taxation and government spending. When contemplating which fiscal policy would be best suited to achieve certain goals, it's necessary to understand their intended economic impacts.

To end a recession (Goal A), the government is likely to implement an expansionary fiscal policy, which involves increasing government spending and/or reducing tax rates. This approach aims to inject more money into the economy, thereby encouraging consumer spending and business investment, leading to economic growth.

To reduce tax rates (Goal B), the government may opt for lower taxes during periods of economic downfall to stimulate spending and investment among consumers and businesses alike. However, this can lead to a decrease in government revenue.

The intention behind a goal to lower federal spending (Goal C) could be to slow down an overheating economy. This is a contractionary fiscal policy move, often used to prevent inflationary pressures when the economy grows too quickly.

To increase tax revenue (Goal D), the government might raise taxes. This too is a form of contractionary policy commonly utilized when the economy is booming to slow down aggregate demand and curb inflation.

Therefore, if the goal is to encourage economic growth (2), the best-suited fiscal policy would be either to end a recession by increasing government spending or reduce tax rates to stimulate the economy. Conversely, to slow economic growth (1), either lowering federal spending or increasing tax revenue would be the appropriate fiscal policies to pursue.