Whalen_FIN1010_WK2_DiscussionQuestions.docx - Why Congress...

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Why? Congress often reduces taxes on middle- and low-income taxpayers with the expectation that consumers will spend most of that money and help create more economic growth. Is this idea good or not, and why? This is to increase economic activity through the largest source of economic spending, consumer spending. When marginal propensity to consume is high, people are likely to spend additional income due to tax relief or other sources. This extra spending becomes other people’s income, due to this multiplier the government can have a much larger impact than dollars spend. This does work, and it is a clever idea, but people do not always spend their extra income. During times of economic uncertainty, consumers may be reluctant to let go of money and decide to hang on to it instead. 2. Some college students earn money that is paid to them in cash and then do not include this as income when they file their tax returns. What are the pros and cons of this practice?
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