The Difference in Stimulus Provided by Government Spending Versus Tax

question 67

Multiple Choice

The difference in stimulus provided by government spending versus tax cuts is caused by the fact that:

• A) people don't respond to tax policy as greatly as they do to as spending policy.
• B) the government is able to target spending in high-need areas of the economy.
• C) tax cuts take longer to implement legislatively.
• D) only a fraction of tax cuts are spent immediately, while the full amount of government spending immediately makes it to the economy.

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Definitions:

Fiscal Policy Measures

entail government actions using taxation and spending policies to influence macroeconomic conditions, including inflation, employment, and economic growth.

Inflationary Gap

A situation where aggregate demand in an economy outpaces aggregate supply, leading to inflation and a potential overheating of the economy.

Federal Budget Deficit

A federal budget deficit occurs when a government's expenditures exceed its revenues within a given fiscal year, leading to the need for borrowing.

Fiscal Policy Measures

Actions by the government that include implementing taxes and allocating funds to impact economic conditions.