Question

If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy would tend to be

Answer 1

A tax cut's impact on the economy would typically be weaker if people anticipated that it would only be temporary.

This is due to the fact that fiscal policy often focuses on macroeconomic stabilization, which involves lowering taxes to support a struggling economy and raising taxes to fight inflation.

Taxation and expenditure measures taken by the federal government to stimulate the economy are referred to as fiscal policy.

Discretionary Fiscal Policy is the term used to describe budgetary actions taken by the federal government to alter the status quo economy or to control inflation.

When fiscal policies are put into practice, either government spending is reduced, taxes are raised, or both.

Learn more about Fiscal Policy here

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