Question

1.When responding to a recession, Congress faces two choices about its policy response--change taxes or change spending. If you support a large federal government, which policy would your endorse? Explain your logic.

Answer 1

Federal government has fiscal policy instrument where they can implement taxation and spending to increase or decrease the inflation/ deflation condition. in order to support recessionary condition federal government would try to adjust both taxation and spending habit on account of government, but between these two taxation would be highly appreciated as taxation is instrument that guide the behavior of both government and consumer, decreasing in taxes on individual income leads to increase liquidity in the market, increase the aggregate demand , investment in capital goods and productions possibility leads to overcome the recessionary situation. although taxation would decrease revenue for government but it will help to stabilize the economy efficiently. once the recessionary condition is over government may resort to prior taxation policy that were existing before recession.