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How will the government policy of increasing federal state or local taxes could eventually lower inflation?
Wiki User
∙ 13y ago
if inflation is increasing that means the economy is over producing and that the economy has an inflationary gap which means the equilibrium GDP(where total spending is equal to total production) is greater then potential GDP(full employment GDP). Increasing taxes will reduce the disposable income that consumer have which will then reduce consumer expenditure(which is one of the components of GDP or aggregate demand). This will lower the equilibrium GDP to be the same as potential GDP and will lower the equilibrium for the supply and demand graph for the entire economy to a lower price level reducing price levels.
Reducing government spending or decreasing transfer payments will have the same affect on the economy.
Wiki User
∙ 13y ago
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What economic challenge did the newly formed American federal government face?
Inflation
What did the federal government do to get inflation under control after the civil war?
They stopped printing greenbacks and making silver into coins.
Which fiscal policy strategy would the federal government most likely use to stablize the economy?
The fiscal policy strategy that the Federal government would most likely use to stabilize the economy during times of inflation is to raise taxes. However, they could also decrease government spending.
What are not goals of federal economic policy?
Low inflation
What word means having to do with central government of the US?
The central government of the US is the Federal government.
How does the federal reserve monetize debt?
The FED monetizes debt by printing money. Then using that money to purchase government bonds. The bonds are sold as a method of covering deficit. The problem lies in the fact that when this happens it causes Aggregate Demand to increase and results in inflation. If the government continually does this, it traps the monetary system into a spiral of increasing inflation and increasing unemployment.
What economic challenge did the newly formed American federal government face?
Inflation
If their is high inflation and the federal government spends less and raises taxes the government is utilizing what?
fiscal policy
Who has traditionally opposed the increasing size and scope of the federal government?
feralists
Who Traditionally opposed the increasing size and scope of the federal government?
conservatives
How does government intervene to lower inflation or unemployment?
The government acts on inflation through The Federal Reserve. The Federal Reserve acts on inflation by targeting interest rates through the reserve requirement. When interest rates are high, people want to keep money in their bank accounts, and inflation decreases. When interest rates are low, people are more willing to spend their money and inflation increases. Once, the Federal Reserve actually pushed the United States into a recession once to battle especially high inflation. Ever since then, it has been very important for the Federal Reserve to keep inflation in check. The government, as demonstrated during the latest recession, enacts many different stimulus packages to help the economy recover and help unemployment come down from extremely high percentages.
What support is the government giving to job creation?
The Federal Government is printing trillions of Dollars and expanding the Federal Government in order to meet the needs of an expanding government. Eventually everyone will work for the Federal Government.
How is monetary base related with inflation?
The monetary base has been historically correlated with inflation and government debt. Increasing government debt results in an increase of the money supply, as the Federal Reserve buys the debt (Treasurys) with created money. Increases in the money supply are commensurate with an increase in inflation, per historical measures. (Reference: http://www.econideal.com/2011/08/national-debts-debt-monetization-and.html) From 2008 to 2012, the adjusted monetary base has exploded to keep government and mortgage borrowing costs low.
What did the federal government do to get inflation under control after the civil war?
They stopped printing greenbacks and making silver into coins.
During Carter's administation how did the government try to fight inflation?
The Federal Reserve began raising interest rates
What is efforts of the federal government to keep the economy stable by increasing or decreasing taxes and or government spending?
increase taxes and and spend systematically
What has caused the us federal reserve system to announce that it will cut back on purchasing us government bond and treasury bill financial investments?
The Federal Reserve buying US government bonds causes inflation, so the government can't continue indefinitely.
