Scenario Imagine that a group of advisors to the president h

Scenario
Imagine that a group of advisors to the president has suggested providing a tax cut for the middle class in order to stimulate the economy and reduce unemployment. The president has asked for your analysis of this proposed tax cut.

Describe how an economic scientist would approach the tax cut recommended by the advisors in the scenario you just read. What are some economic factors that the economic scientist would consider when crafting his or her statement on the tax cut proposed?

Describe how an economic policy advisor would approach the same tax cut and provide the reasoning behind the position.

Solution

Tax cut for the Middle class

We know that tax cut is a reduction of taxes. When tax cut are introduced then real income of the people will be increased and real income of the government will be decreased. The only way for increasing economic growth by reducing tax cut is to stimulate spending of the people. When the tax cut is more beneficial for the rich peoples. But the argument says that the tax cut generally improve the economic growth by increasing the standered of living of the people.

The tax cuts never improved the standered of living of the middle class. The spending of the middle class is not much improved. That means there is no perfect relationship between tax cut and economic growth. but someone think that the eax cut will improve the economic growth. The tax cut will improve the disposable income of the people. When disposable income increases then the investment and saving will be increased. These investment will improve the economic growth of the country.

But the important fact here is that tax cut will improve the employment in the economy. It is depeds upon the types of tax cuts. If income tax will decreased then income of the people will be improved. So the spending of the people will be improved. the theorists of supply side is supported the tax cut for increasing economic growth. The tax cut will lowered the government revenue but in the long run it will be improved.