In this assignment, you will analyze fiscal policies as they relate to the business environment. Fiscal policy works by raising tax revenue and spending it. Refer to the chart “Income and Outlays” from the Internal Revenue Service in the “From the Expert” section this week, to see a general breakdown of how revenue is generated and spent. To assist you in your analysis, you can use the simulation at http://federal.budgetchallenge.org/pages/overview. This simulation may help you to see the effect on the budget of the changes you are making. 1. Suppose a law was passed mandating a 10% immediate reduction in all spending. Which programs would you cut and by how much? Analyze the effects of these cuts on individuals, firms, and society. 2. Alternatively, suppose a law was passed limiting borrowing to cover the deficit to 27% of income. In other words, the government would have to find 10% more in tax revenue to offset that borrowing. What taxes would you increase and by how much? Analyze the effects of these higher taxes on individuals, firms, and society.
