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should the Government spend less, raise taxes, or borrow money to cover budget deficits?​

Sagot :

Parrain

Answer:

This is a subjective question which depends on a mix of variables.

Government spending props up in the economy by increasing Aggregate demand in the short run so reducing spending can rob the economy of that.

Tax hikes act to contract the economy as people would have less disposable income to spend. Borrowing money has its own drawbacks because interest will have to be paid on the debt.

Inferring from the above, a major factor in determining how to cover deficits is the stage the economy is in. If the economy is experiencing a boom then the government does not have to spend as much so they can embark on both cutting spending and raising taxes as using these two in tandem have been effective in reducing deficits historically.

If the economy is experiencing a recession or depression, the government should borrow money to cover deficits so that the increased spending can help the economy recover after which they can then increase taxes to recoup costs.

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