How Can Tax Cuts Help Revive the Economy

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Tax Cuts
Economics

How can tax cuts help revive the economy?
Galo Guerrero
DeVry University
Content

Introduction…………………………………………………………………………..page 2

Fiscal Policy…………………………....………………….………………………….page 2

Multiplier Effect……..………………….………………….…………………………page 3

Obstacles Reaching the Goals…………………………………………………….......page 3

Conclusion .……………………………………………………………………….......page 4

References……………………………………………………..………………….......page 5

How can tax cuts help revive the economy?

Abstract: There are many opinions and predictions about how the economy will get back on track or how it will sink, and what should be the best approach of the government to take on this economic crisis. How important is the role of the government and how much a government should interfere in the economy? Introduction

Unemployment has been one of the major concerns for many governments; historically unemployment reached 25% in the United States during the great depression in 1933.
When there are no jobs people don’t have the money to spend, and demand for products decreases. When demand decreases many companies go out of business or just hire fewer workers, while unemployment keeps growing. The government has a very powerful tool called fiscal policy to manipulate the economy and control and manage the levels of demand.

Fiscal Policy
Fiscal policy is based on the theories of John Maynard Keynes also known as the Keynesian economics. The theory of Keynes state that the government can influence the economy by manipulating the increase or decrease of taxes and at the same time the level of government spending. By controlling the level of government spending what fiscal policy can do is to change the position of the Aggregated Demand curve (AD), since Government (G) is part of the aggregated demand.

At the same time the government could cut taxes putting more money into the pockets of consumers called “disposable income”,...
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