Chapter 12 - Assignment 1: Tax Cuts and Investment

1. Why might a tax cut (unaccompanied by a reduction in government spending) result in a reduction in investment and economic growth?
2. This statement suggests that a tax-cut might stimulate both consumption and investment spending in the short run during a recession. Is this likely? Explain.
3. In the long run, however, it is suggested that a tax cut unaccompanied by reductions in government spending will reduce investment spending. Explain this argument.