Question

Suppose the government cuts taxes to keep the economy's cyclically adjusted budget in balance when the economy is expanding. The government is engaging in a(

Answer 1

When the government cuts taxes to keep the economy's cyclically adjusted budget in balance when the economy is expanding. The government is engaging in "neutral fiscal policy".

What is neutral fiscal policy?

When a government choice to tax, spend, or borrow has, or is meant to have, no overall impact on the economy, the action is considered fiscally neutral. Changes in policy can be viewed as neutral in terms of either their macroeconomic, microeconomics, or both effects.

fiscal neutrality occurs when taxes and government spending have no net effect-

• on the overall budget,
• total demand,
• economic activity.

To know more about the difference between macroeconomics and microeconomics, here

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