Answer to Question #133805 in Economics for Jason Max

Question

Your father has just stated that the government’s cut in income taxes and income supplement will be highly effective in order to boost economic growth as consumers will spend all their increased after-tax income by shopping at local stores. Explain why you agree or disagree with this statement

Answer 1

The additional income induces people buy more. It increase market sales that a reason of the new purchases from producer and e.t. Business is expanding and employs new worker. It create new consumers and evrething repeat. 

At the same time people save some part of the additional income and the money stimulation loses their effectiveness. Also, markets can sell their stocks and almost does not increase purchases. Also in developed countries, the additional products are more expedient buy abroad.