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    changes to fiscal policy

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    In 2003, the International Revenue Service began to mail out refund checks because of the change in the tax law. Economic forecasters predicted that consumption and GDP would increase because of higher refunds on income taxes.

    Pretend as if you are an economist and explain your thoughts on whether the tax cuts from the past few years have been successful in promoting economic growth or in preventing a deeper decline? Are there other changes to fiscal policy that you feel would have been more successful?

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    Solution Preview

    When the checks were mailed out to individuals by the IRS, a part of the funds went into increasing the overall consumption and a part of the funds went into savings, which in turn would lead to an increase in production and lead to growth through the multiplier. However, this depends on the marginal propensity to ...

    Solution Summary

    This posting considers changes to fiscal policy.

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