Government and the Economy Topic Index

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Real Per-Capita Disposable Income

In July 2001 President Bush signed into law a $1.35 trillion tax cut that reduced marginal tax rates across the board. The President said that the tax cuts would help boost the economy, which was in recession at the time. This is an example of expansionary fiscal policy. Cutting taxes increases disposable personal income, and if consumers respond to this increase in disposable income by increasing their spending, then tax cuts can help move the economy out of recession. This also provides an important example of the interaction of government and the economy.

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