Question

Other things the same, during recessions taxes tend to Select one: a. rise. The rise in taxes contracts aggregate demand. b. fall. The fall in taxes contracts aggregate demand. c. fall. The fall in taxes stimulates aggregate demand. d. rise. The rise in taxes stimulates aggregate demand.

Answer 1

Answer:

The correct answer is letter "C": fall. The fall in taxes stimulates aggregate demand.

Explanation:

Recessions are the economic phases characterized by a decrease in economic growth. Unemployment rises, real income decreases, and the overall economy of a country dwindles. However, the government intervenes to turn around the situation by establishing fiscal policies.

In such scenarios the tax rate decreases for individuals and institutions to have more money available so their purchasing power increases which, eventually, increases the aggregate demand (total demand for finished products).