How do taxes affect the economy in the short run? Q.How do taxes affect the economy in the short run? A.Primarily through their impact on demand. Tax cuts boost demand by increasing disposable income and by encouraging businesses to hire and invest more. Tax increases do the reverse. These demand effects can be substantial when the economy is weak but smaller when it is operating near capacity. Read more about How do taxes affect the economy in the short run?
What characteristics make fiscal stimulus most effective? Q.What characteristics make fiscal stimulus most effective? A.Fiscal stimulus can raise output and incomes in the short run. To have the greatest impact with the least long-run cost, the stimulus should be timely, temporary, and targeted. Read more about What characteristics make fiscal stimulus most effective?
What is the role of monetary policy in alleviating economic downturns? Q.What is the role of monetary policy in alleviating economic downturns? A.Economists view monetary policy as the first line of defense against economic slowdowns—the Federal Reserve can generally act faster than the president or Congress, and it is better equipped to judge the appropriate timing and magnitude of economic stimulus. Read more about What is the role of monetary policy in alleviating economic downturns?
