\( .2 \begin{array}{l}\text { When the economy is in a recession (slowing down of the economy with less money } \\ \text { available to be spent) each of the taxes will probably reduce. Explain why? }\end{array} \)

To understand why taxes might be reduced during a recession, let's break down the economic context and the implications of such a decision step by step. 1. **Understanding Recession**: A recession is characterized by a decline in economic activity, which often leads to lower consumer spending, reduced business investment, and higher unemployment rates. This results in less money circulating in the economy. 2. **Impact on Government Revenue**: During a recession, as individuals and businesses earn less income, the tax revenue collected by the government also decreases. This is because taxes are often based on income levels, sales, and profits. With lower income and spending, the government collects less in income tax, sales tax, and corporate tax. 3. **Need for Stimulus**: To combat the negative effects of a recession, governments often seek to stimulate the economy. One way to do this is by reducing taxes. Lowering taxes can increase disposable income for consumers and businesses, encouraging them to spend and invest more. This can help to boost economic activity and potentially lead to a recovery. 4. **Political and Social Considerations**: There is often public pressure during a recession for the government to take action to alleviate financial burdens on individuals and businesses. Reducing taxes can be a politically popular move, as it can provide immediate relief to those affected by the economic downturn. 5. **Long-term vs. Short-term Effects**: While reducing taxes can provide short-term relief and stimulate the economy, it can also lead to long-term challenges, such as increased budget deficits. Governments must balance the need for immediate economic support with the need for sustainable fiscal policies. In summary, taxes are likely to be reduced during a recession to stimulate economic activity, increase disposable income, and respond to the decreased revenue from lower income and spending levels. This approach aims to help the economy recover from the downturn.