Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
By increasing taxes to reduce inflation
B
By decreasing taxes to increase disposable income
C
By maintaining current tax levels to encourage savings
D
By implementing tariffs to protect domestic industries
Understanding the Answer
Let's break down why this is correct
Answer
In Keynesian economics, discretionary fiscal policy involves the government actively changing its spending and tax policies to influence the economy. During a recession, when people have less money to spend, the government can lower taxes to give individuals and businesses more disposable income. This extra money encourages people to spend, which can help boost demand for goods and services, leading to more jobs and economic activity. For example, if the government reduces income tax, families may have more cash to buy things like groceries or cars, which can help businesses recover. By increasing overall spending in this way, the government aims to reduce the severity of the recession and promote a quicker economic recovery.
Detailed Explanation
Decreasing taxes puts more money in people's pockets. Other options are incorrect because Some think raising taxes can help control prices; Keeping taxes the same might seem safe, but it doesn't help people who are struggling.
Key Concepts
taxation
discretionary fiscal policy
Keynesian economics
Topic
Fiscal Policy in Recessions
Difficulty
hard level question
Cognitive Level
understand
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