Answer to Question #276550 in Microeconomics for Sia

Question

A policy maker deciding how to find as the construction of a new airport he can eat the pay for it by increasing citizens taxes or by printing more money what are some of the short run and long run consequences of each option

Answer 1

Specifically, their influence on consumption. Tax reduction increase demand by raising disposal income and prompting companies to recruit and spend more. Tax hikes have the opposite effect. A rise in income taxes decreases disposable personal income and consequently expenditure, but only by a fraction of the amount of adjustment in disposable personal income. This pushes the overall demand curves to the left by a proportion equivalent to the original difference in expenditure caused by the change in earnings taxes multiplied by the factor.

Printing additional money has no effect on economic activity; it just boosts the volume of currency in circulation. Individuals can want more things if more money is created, but if enterprises still have the same number of items, they will adapt by raising prices.