Reading 10, EOC Q7 solution: Country Y is expected to significantly increase transfer payments and introduce a more progressive tax regime. Both of these changes are pro-growth government policies and should have a positive impact on the trend rate of growth for a business cycle that is in slowdown or contraction. Transfer payments help mitigate fluctuations in disposable income for the most vulnerable households, while progressive tax regimes imply that the effective tax rate on the private sector is pro-cyclical (i.e., rising as the economy expands and falling as the economy contracts).
Institute, CFA. 2020 CFA Program Curriculum Level III Volume 2 . CFA Institute, 08/2019. VitalBook file.
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