Stabilization policy is the use of government policy to reduce the severity of recessions and harness in excessively strong expansions. The government manages macroeconomic fluctuations (manage business cycles) to lessen the economic pain of recessions and tame inflation. By coordinating monetary and fiscal policy, the Federal Reserve Bank Chairman, Ben Bernanke, and U.S. Treasury Secretary, Henry Paulson, responded to the financial crisis by intervening in financial markets in unprecedented ways in 2008.
1. Do you think this intervention was necessary? What are the consequences of this intervention? What might have happened if they had not intervened?
There is ongoing debate regarding the structure of the current income tax system in the U.S. Many opponents of the current system argue that under its current structure, many wealthy households can avoid taxes. The tax system is simply too complicated and confusing for most of the households. One solution that has been proposed is the “flat tax” system.
2. What are the benefits and detriments of replacing the current income tax system with a flat tax system? Who benefits and who might be harmed by the introduction of a flat tax? What implication does the flat tax system have for tax preparation companies such as H&R Block®?