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There are many different types of scenarios regarding this. Allot depends on how much of an increase in spending, along with how much of a decrease in tax rates. Generally speaking, lowing taxes helps individuals and companies to retain more of their income. Clearly this income saved is not placed under a mattress. Extra income is often spent by increasing production and thus even at lower tax rates the increase in taxable income rises. This benefits all including government revenues. The problem comes if spending outstrips the extra tax income from the private sector. Then interest rates on government borrowing becomes higher. Adding to a high deficit makes for a certain degree of lost confidence in the way a government handles its finances. On the individual side, a decrease in taxes gives the consumer more income to spend or save. If spending is increased then sales taxes gain income. The spending also keeps companies in business and they are able to hire more people. If the consumer decides to save their extra income, it gives banks more funds to lend to other consumers and to businesses.
What else can I help you with?
How do changes in income affect the demand for a good?
Increases in income allow for more disposable income which increases spending and the demand for goods. Decreases in income conversely decreases disposable income which decreases spending.
What will happen if the government decreases spending and everything else remains constant?
If the government decreases spending and everything else remains constant, there will be a decrease in aggregate demand, leading to a slowdown of economic growth or even leading to a contraction of the economy.
In an aggregate demand-aggregate supply diagram what will equal decreases in government spending and taxes do?
No effect. Spending will decrease Aggregate Demand, lower taxes will raise Aggregate Demand
By what economic activity is the normal business cycle punctuated?
From its highest point, prosperity, to its lowest point, trough, these phases are marked by increases and decreases in GDP, unemployment, demand for goods and services, and spending.
Does greater government spending increase GDP?
yes absolutely, government spending increases gdp in almost everyday. for instance, defense spending, people being paid, those people have jobs, those people are producing goods, and spending, putting more money into the economy and therefore stimulating other peoples business.Example: all the people that were put to work to increase the BP oil spill.
What is most likely to occur after the government increases taxes?
It reduces the money available for private sector spending.
How do changes in income affect the demand for a good?
Increases in income allow for more disposable income which increases spending and the demand for goods. Decreases in income conversely decreases disposable income which decreases spending.
What branch of government has the power to increase or decrease taxes?
The Legislative Branch of government make law in taxation, that is, taxation regulations, taxations budget, taxations spending, taxations increases and decreases.
What is the approval of government spending?
The approval of government spending comes from Congress. It is referred to as the budget resolution or the deficit resolution.
Is the approval of government spending?
The approval of government spending comes from Congress. It is referred to as the budget resolution or the deficit resolution.
What happens to taxes when the government increases spending?
they go up
What will happen if the government decreases spending and everything else remains constant?
If the government decreases spending and everything else remains constant, there will be a decrease in aggregate demand, leading to a slowdown of economic growth or even leading to a contraction of the economy.
How does large Government spending help the economy?
Government spending increases aggregate demand by giving money to individuals and business to hopefully spend.
When did congress pass automatic increases in baseline spending?
after nixon suppended the gold standard in 1971.
Which branch of government is in charge borrowing and spending money in the US?
Congress
Which has been a trend since the 20th century A progressive increases in earnings for the middle class B growing levels of government spending C less government spending on entitlement programs?
growing levels of government spending
Which act created a pay-as-you-go system that requires Congress to raise enough revenue to cover increases in direct spending?
The 1990 Budget Enforcement Act was created to require congress to raise enough revenue to cover increases in direct spending. This act created two budget control processes which included the pay as you go system and caps on spending.
