Question

Ruritania's economy has been enjoying positive but slowing growth. The Ministry of Economics is considering various policy measures. Place each option in the appropriate column according to whether it will most likely lead Ruritania on a business cycle path towards continued growth or into a recession. 1) Decreasing Goverment Spending 2) Decreasing taxes 3) Increasing government spending 4) Increasing taxes 5) increasing the federal budget deficit 6) Increasing the federal budget surplus Thank you in advance.

Answer 1

Growth in the economy:

• decreasing taxes
• increasing government expenditure
• increasing the federal budget deficit

All these will increase the growth in the economy because the demand in the market will increase and that will increase the economic activity and business growth too.

Slowing down the economy:

• Decreasing the government expenditure
• increasing the taxes
• increasing the federal budget surplus,

All this will decrease the demand and economic activity in the market.