pros and cons of using a change in tax rate to achieve the desired increase in out put.?

Question

how will the change affect equilibrium prices, out put, and unemployment?

Answer 1

The pros of fiscal policy (of which tax changes are a piece) to causing economic changes is that the government is theoretically accountable to the population. If the population doesn't like a particular tax rate, they can bounce a party out of power.

The cons are that fiscal policy takes a long time to enact, and a longer time to actually have an effect on the economy.


That said:
A tax cut, in the short term, will increase GDP, increase prices, and decrease unemployment -- due to reaction to the tax multiplier and interest rates.

A tax hike will have the opposite effect.

Answer 2

It will raise equilibrium prices, decrease output, and increase unemployment.