Answer to Question #150614 in Economics of Enterprise for blue

Question

Every year, the President creates the budget for the federal government. This process involves deciding between raising taxes or lowering taxes, and increasing government spending or cutting some government programs to save money (decreasing government spending).

In this scenario, the current state of the economy is as follows:

Real GDP has fallen
Unemployment rates are rising
Prices are falling slowly (deflation)
Based on the information above, how would you advise the President? Give at least 2 pieces of advice that you would give.

Answer 1

If real GDP has fallen, the president should influence rate of economic growth through expansionary fiscal policy by lowering taxes so as to increase the budget deficit.

When unemployment rates are rising, the president should boost economic growth by creating jobs opportunities through increasing spending on government projects.