Question 9 How would the economy likely react to Congress cutting personal income taxes for all taxpayers? a The economy would not change b Economic activity would increase has people spend more money c No one would spend money, causing a deep recession d Slight ups and downs in the economy, eventually evening out

## Step 1<br />This problem is about understanding the potential effects of a fiscal policy decision, specifically the reduction of personal income taxes, on the economy. The options provided suggest different potential outcomes, and the task is to identify the most likely one.<br /><br />## Step 2<br />The reduction of personal income taxes means that individuals have more disposable income. This is because they are paying less tax, which leaves them with more money to spend or save.<br /><br />## Step 3<br />When individuals have more disposable income, they are likely to spend more money. This increased spending can stimulate economic activity, as it leads to increased demand for goods and services.<br /><br />## Step 4<br />The increased demand for goods and services can lead to increased production, which can further stimulate economic activity businesses need to produce more goods and services to meet the increased demand.<br /><br />## Step 5<br />Therefore, the most likely outcome of Congress cutting personal income taxes for all taxpayers is that economic activity would increase as people spend more money. This is because the reduction in taxes increases disposable income, which leads to increased spending and demand, which in turn stimulates economic activity.