A government raises income tax rates for very high wage earners and spends all of the extra revenue raised on higher welfare benefits. The result is a reduction in income inequality and a fall in the rate of economic growth. This is also most likely to
1 )
lead to a reduction in government borrowing and national debt.
2 )
result in an improvement in incentives to work.
show a potential conflict between macroeconomic policy objectives.
4 )
show the use of a contractionary fiscal policy.
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