Lowering taxes can also leave money in citizen’s pockets but it also takes away from the amount of money the government is able to use to stimulate the economy by spending. When the government increases spending it forces the demand to go up, if taxes were lowered citizens will still have the choice to spend
To increase their taxes would be appropriate and this would be stream lining taxes at a time when the economy needs a boost. The Keynesian economists would look at government spending as a means for the government to stop the little growth the economy has had and is to have. The government spending would make it so the people would not have the money to spend within the states and they would have to go without needs and desires. This in turn would be the money that could be used within the economy.
Lower reserve requirements will result in more funds being available to loan out. This should, in turn, increase the rate of economic growth. Conversely, a higher reserve requirement will reduce the availability of funds and should slow economic growth. In this case, we need to increase our rate of economic growth in response to the recession, so I choose to lower the reserve requirement. The reason I would make this choice is to stimulate lending to businesses, reduce unemployment and increase household income so that the economy could then recover naturally.
However, pensioners will be hit hard because the extra income they earn from saving will have dramatically reduced, making them worse off. On the other hand, savers may leave the pound for better interest rates in other countries (hot money), causing a fall in the demand for the pound. As a result the value of the pound will fall, making exports cheaper and there will be an injection of net exports. In conclusion, the impact of loose monetary policy will be beneficial to the economy because extra consumption and investment will cause AD to increase which will increase economic growth. However, it takes a long time for changes in interest rates to feed through to consumption and investment and by then the economy may have gotten worse.
When there is a greater disposable personal income this will allow consumption to increase due to the money saved from the lower tax rate. Through consumption increasing this will favour economic because the gross domestic product has increased. When government expenditures are increased it will have a multiplier effect on aggregate demand. Because of the multiplier effect, the government can increase spending by only a small amount to achieve a larger, necessary increase in aggregate demand. By doing so, the economy will be able to attain an equilibrium level of real
The level to which higher demand increases output and prices depends on the state of the business cycle. Without changing the price level will lead to an increase in demand if the economy is in recession. A fiscal expansion will have more of an effect on prices and less impact on total output if the economy is at full employment. To restore output during a recession the government can run an expansionary fiscal policy helping to restore and to return the unemployed to work. The government can run a budget surplus; this will help to slow the economy when inflation seems to be a larger dilemma than unemployment, leading to a budget balanced on
Reducing taxes is the best way to facilitate the creation of actual wealth and have the economy reach its growth potential. Wanna-be central planners and welfare-state bureaucrats cannot compete with the progress and material improvement that a rapidly growing free-market economy offers. Bush’s tax cut may have flaws, but being too big or too radical is not one of them. This economy needs a tax cut, the bigger and sooner the better. The president’s plan is both politically possible and a practical starting point and I believe Americans would be well served by its enactment.
The less expansion, the less inflation. However, if the economy is slowing down, interest rates will decrease. This allows banks and businesses to borrow more cheaply, which results in them being able to higher more workers and produce more goods. The monitoring of inflation is very important in the US. Inflation has many negative affects.
Satoria Mckenzy Principals of Economics (Ref # 380267) Spring 2013 The Full Economic Impact of an Increase in the Minimum Wage Where minimum began - The history of minimum wage, what is minimum wage, the laws of minimum wage. The minimum wage has a strong social appeal, rooted in concern about the ability of markets to provide income equity for the least able members of the work force. For some people, the obvious solution to this concern is to redefine the wage structure politically to achieve a socially preferable distribution of income. Thus, minimum wage laws have usually been judged against the criterion of reducing poverty. Statutory minimum wages were also proposed as a way to control the proliferation of manufacturing industries.
Instead of agreeing to leave the economy in the hands of an enabling government, republicans feel for an economy jumpstarted and fueled by the wealthy. Instead of destroying the wealthy, republicans feel that placing more money in the hands of the rich instead of taking it from them will encourage spending nationwide. This will allow for more jobs through business growth, which allows for a decreasing poverty rate as people on welfare transition to being self-sufficient members of society. As common sense as this may stand many take aim against this “For America to get back on track we are probably going to cut that sort (The upper class tax breaks) and not give it to you, we are going to take things away from you on behalf of the common good (Hillary Clinton)”. Anti business and enabling irresponsibility, people oppose the undenying common sense of this idea.