Answer to Question #124264 in Macroeconomics for Aleeza

Question

Why budget deficit and reduction in tax both not apply at the same time? Which strategy should choose to increase investment incentives

Answer 1

When spending is more than someone’s income this is referred to as a budget deficit, while tax reduction refers to the general reduction in taxes that is reduction of one’s tax liability not forgetting even the value added tax is reduced. This two policies cannot occur at the same time.

When there is a budget deficit banks will increase the interest rates since they are afraid that the person they had given loans may not be able to pay.

Investment incentives boosts the economic growth so much if there is a good investment incentive more investors will be interested to invest.

In order to boosts this the government should lower the interest rates when one borrows a loan in order to invest. It should also ensure that there is a good environment for investors to invest.