In 2003, government passed a substantial cut in income taxes. The central bank also lowered interest rates. How can these two actions be categorized?

Question

BlackTom AI · Accepted Answer

To approach this question, we first identify the two actions described: a substantial cut in income taxes and a central bank's lowering of interest rates.

Option a: Both actions can be categorized as fiscal policy. This is inaccurate because fiscal policy typically refers to government spending and taxation decisions, whereas monetary policy concerns central bank actions like setting interest rates. Since one action is a tax cut (fiscal) and the other is an interest rate change (monetary), labeling both as fiscal policy is misleading.

Option b: The tax cut can be categorized as fiscal policy and the lowering of interest rates can be categorized as monetary policy. This matches standard macroeconomic classifications: fiscal policy involves government taxation and spending, while monetary policy involves central bank tools such as interest rate adjustments. The combination described in the scenario fits this dichotomy.

Option c: Both actions can be categorized as monetary policy. This is incorrect because tax policy (the tax cut) is inherently a fiscal instrument, not a monetary one. Monetary policy operates through money supply and interest rates, not through changes in tax legislation.

Option d: The tax cut can be categorized as monetary policy and the lowering of interest rates can be categorized as fiscal policy. This swaps the correct classifications and is factually wrong; tax cuts are not monetary policy, and interest rate changes are not fiscal policy.

Option e: The tax cut can be categorized as expansionary and the interest rate change can be categorized as contractionary. This suggests opposite objectives for the two tools, which is not necessarily implied by the scenario. In practice, a tax cut is typically expansionary, and lowering interest rates is also expansionary; presenting the rate cut as contractionary mischaracterizes monetary policy actions.

In summary, the most accurate pairing is that the tax cut constitutes fiscal policy while the interest rate reduction constitutes monetary policy, reflecting the standard framework for macroeconomic policy tools.

Academic Courses Test#3

In 2003, government passed a substantial cut in income taxes. The central bank also lowered interest rates. How can these two actions be categorized?

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类似问题

If the economy is in a recession, an appropriate combination of monetary and fiscal policies might be to:

A goal of monetary policy and fiscal policy is to[Fill in the blank]

If the economy is in a recession, an appropriate combination of monetary and fiscal policies might be to:

If the economy is in a recession, an appropriate combination of monetary and fiscal policies might be to:

如果经济陷入衰退，货币政策和财政政策的适当组合可能是：

Which of the following do most economists NOT agree on?

An increase in tax rates is an example of policy, while the government influencing banks to lend more to consumers is an example of policy.

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Academic Courses Test#3

In 2003, government passed a substantial cut in income taxes. The central bank also lowered interest rates. How can these two actions be categorized?

查看解析

登录即可查看完整答案

类似问题

If the economy is in a recession, an appropriate combination of monetary and fiscal policies might be to:

A goal of monetary policy and fiscal policy is to[Fill in the blank]

If the economy is in a recession, an appropriate combination of monetary and fiscal policies might be to:

If the economy is in a recession, an appropriate combination of monetary and fiscal policies might be to:

如果经济陷入衰退，货币政策和财政政策的适当组合可能是：

Which of the following do most economists NOT agree on?

An increase in tax rates is an example of ________ policy, while the government influencing banks to lend more to consumers is an example of ________ policy.

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希望你的学习变得更简单

An increase in tax rates is an example of policy, while the government influencing banks to lend more to consumers is an example of policy.