Question

Which fiscal stimulus policy will provide a greater incentive to work?

A.
government borrowing program

B.
an income tax increase

C.
a one-time-only tax rebate

D.
an income tax rate cut

Answer 1

D.

an income tax rate cut

Step-by-step explanation:

Fiscal stimulus programs are government policies aimed at accelerating growth in times of recessions. The government adjusts its spending or tax rates to influence the economy's direction. A stimulus is meant to increase output and increase income.

An income tax rate cut increases the amount of disposable income of consumers. An increase in disposable incomes boosts consumer spending, which results in increased demand. Firms in the service and manufacturing industries will respond to the rise in demand by increasing production. A rise in output creates employment opportunities.