Suppose the federal government incurs a deficit because the economy enters a recession. In attempts to balance the budget, Congress enacts a temporary increase in marginal tax rates. This policy will:

Question

Quizplus · Accepted Answer

Increasing marginal tax rates during a recession is likely to reduce disposable income and decrease aggregate demand, worsening the recession. This can lead to a further decrease in tax revenues and may not be an effective way to balance the budget.

Suppose the Federal Government Incurs a Deficit Because the Economy