📚 Learning Guide
Fiscal Policy and National Debt
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If a government decides to significantly increase taxes while simultaneously reducing public spending, what is the most likely underlying cause of this fiscal policy shift in relation to national debt management?

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Choose the Best Answer

A

To stimulate economic growth by increasing consumer spending

B

To reduce the national debt by decreasing the deficit

C

To increase government revenue without affecting public services

D

To lower interest rates and encourage investment

Understanding the Answer

Let's break down why this is correct

Answer

When a government increases taxes and reduces public spending, it often does this to manage or reduce national debt. National debt is the total amount of money the government owes, and if it gets too high, it can create problems for the economy. By raising taxes, the government collects more money, which can help pay off existing debt or prevent it from growing. At the same time, cutting public spending means the government is using less money on services and programs, which can also help balance the budget. For example, if a country is spending a lot on healthcare but has a high national debt, it might raise taxes on income and reduce healthcare funding to make sure it can pay back what it owes.

Detailed Explanation

The government wants to lower its national debt. Other options are incorrect because Some might think that raising taxes helps people spend more; It's a common belief that increasing taxes can boost government income without affecting services.

Key Concepts

Fiscal Policy
National Debt
Economic Growth
Topic

Fiscal Policy and National Debt

Difficulty

medium level question

Cognitive Level

understand

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