Problems with countercyclical fiscal policy The country of Sinos is entering a r

Question

Problems with countercyclical fiscal policy The country of Sinos is entering a recession and is debating a stimulus package of tax cuts and increased government spending to counter it. Advocates of the package contend that the situation In Sinos makes countercyclical fiscal policy appropriate, while opponents claim the opposite. For each of the following characteristics of Sinos, indicate whether it supports arguments for the stimulus or against the stimulus. The time required in Sinos to enact legislation for tax cuts is short, relative to the expected length of the recession. Supports arguments for the stimulus Supports arguments against the stimulus Residents of Sinos have a marginal propensity to consume (MPC) from temporary tax cuts that Is much lower than their MPC from regular income. Supports arguments for the stimulus Supports arguments against the stimulus

Explanation / Answer

Tax cut and increasing government spending can only solve the problem for short time. There is also too much risk in this decision because tax cut stimulates the supply and demand. If tax cut is for short time it means it will make today better than tomorrow. The tax does not stimulate the gap between output and the production. So I support the arguments against the stimulus. If the tax cut is lower than the propensity to consume than it will not increase the demand. So I supports arguments for the stimulus.

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