Suppose President Jenkins announced that she would pursue a modest income tax increase and Fed Chairman Kubrick announced he would raise interest rates. How would that combination of policies benefit the economy?

Answer 1

The combination of a modest income tax increase and an increase in interest rates could have several potential benefits for the economy.

Firstly, the income tax increase would provide the government with additional revenue, which could be used to fund important public services and infrastructure projects. This could help stimulate economic growth and create jobs.

Secondly, raising interest rates could help to curb inflation and prevent the economy from overheating. By making borrowing more expensive, higher interest rates could help to slow down spending and investment, which could help to prevent the economy from becoming overheated and experiencing a boom-bust cycle.

Overall, the combination of these two policies could help to promote economic stability and sustainable growth in the long term.