Homework Question: Did you hear the latest unemployment numbers that were report
ID: 1247746 • Letter: H
Question
Homework Question:Did you hear the latest unemployment numbers that were reported last week? It sounds like economists are still worried about the performance of the U.S. economy. Now, there has been some talk about extending tax cuts from the Bush era or implementing new tax rebates – I’m not sure exactly what the plan is, but I need some help understanding why these options are being considered! Can you please explain why the government would lower the taxes paid by households as well as the expected impact of this type of policy on the economy?
Explanation / Answer
If you lower taxes, then people are paying less money to the government and therefore have more money in their pockets. The theory is that if people have more money, then they will spend it. By spending money that causes an increased demand for goods. Companies will have greater revenue due to the increase in purchases. When companies have money they are able to pay and maintain (if not add to) the number of employees that they have. This would maintain or decrease the unemployment rate. In short, if people have money they spend it, and people spending more money leads to a higher GDP and lower unemployment rates. However, one worry about giving tax cuts is that people will just use it to pay off their debt which does nothing for GDP. If this helped, please rate.
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