ECONOMICS
SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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New car prices drop because of a recession
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New laws go into effect that mandate extremely high levels of fuel efficiency for all new cars
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A new excise tax of 10% on all new car sales.
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The government gives a direct tax rebate of $2500 to all individuals who purchase a new car.
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Detailed explanation-1: -Historically, during a recession, sales of new and used cars decline significantly as many potential purchasers drop out of the market. However, it’s likely that any new recession will not be the same for car buying as previous recessions, such as the ones in 2008 and 2020.
Detailed explanation-2: -During a recession, the government should use expansionary fiscal policy. This could be either by raising government spending or by lowering tax rates. Q. To control inflation, the government can increase tax rates as it will decrease the people’s purchasing power.
Detailed explanation-3: -To counter a recession, it will use expansionary policy to increase the money supply and reduce interest rates. Fiscal policy uses the government’s power to spend and tax. When the country is in a recession, the government will increase spending, reduce taxes, or do both to expand the economy.
Detailed explanation-4: -In general, prices tend to fall during a recession. This is because people are buying less, and businesses are selling less. However, some items may become more expensive during a recession. For example, food and gas prices may increase if there’s an increase in demand or a decrease in supply.