Fiscal Policy: Taxes — Quiz

Question 6 • Economics

If expansionary taxation policies encourage growth, are they always appropriate to implement?

Answer

Yes, the private sector can easily and affordably replace all services and facilities cut by the government.

No, government services could encourage growth but other practices could be more effective based on the economic situation.

No, the government is capable of providing many but not all services individuals and businesses need.

Yes, the government will still ensure that individuals and businesses continue to receive all necessary services.

Explanation

No. Expansionary tax policies can encourage growth, but they are not always the best choice because the effects of policy depend on current economic conditions. The government must weigh possible growth against reduced revenue and consider whether other approaches would work better. Choice A states this qualification; choices B and D incorrectly assume that services can always be maintained or easily replaced.

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