QuestionSuppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?
Reductions in federal tax rates on personal and corporate income.
A congressional proposal to incur a federal surplus to be used for the retirement of public debt.
Postponement of a highway construction program.
Reductions in agricultural subsidies and veterans' benefits.
Studdy Solution
STEP 1
What is this asking?
Which government policy would *best* boost the economy during a recession?
Watch out!
Don't mix up policies that *help* the economy with policies that *hurt* it!
Think about how each choice affects people's spending and jobs.
STEP 2
1. Analyze Tax Cuts
2. Analyze Debt Retirement
3. Analyze Postponement of Highway Construction
4. Analyze Reduction in Subsidies and Benefits
STEP 3
Lowering taxes means people and businesses have *more* money!
They can spend this extra cash, which creates demand for goods and services.
This demand encourages businesses to produce more, leading to economic growth and more jobs!
STEP 4
While paying off debt sounds good, it means the government is taking money *out* of the economy.
This can slow things down, especially during a recession when we want *more* spending, not less.
STEP 5
Postponing highway construction means fewer jobs for construction workers, and fewer orders for materials like concrete and steel.
This decrease in spending can worsen a recession.
STEP 6
Cutting subsidies and benefits means less money for farmers and veterans.
This reduces their spending power, which can further slow down the economy during a recession.
STEP 7
The policy that would most likely end the recession and stimulate output growth is **reductions in federal tax rates on personal and corporate income**.
It puts more money into the hands of people and businesses, encouraging spending and boosting economic activity!
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