The wage spiral occurs as we are getting closer to the maximum employment so people tend to want a higher wage as the competition has reduced. Of course, we can also see that this causes inflationary pressures from GPL1 to GPL2 but this is not necessarily a bad thing as it can be controlled but also because of the higher wages people can afford it. So a higher GDP seems to lead to a higher standard of living. However, we have missed off a vital part of this analysis of a benefit – who it affects. We have
However, in the long run these will have an effect on unemployment that will rise up and getting even worse. Moreover, most people are unlikely to be happy to accept higher taxes as it reduces disposable income and the level of consumption. A reduction of government spending may result in less people will support the government. Demand side policies will bring down the price level (reduce inflation), but they will result in lower national output and rise in unemployment. Therefore, government could use supply side policies to deal with the unemployment situation such as in interventionist supply-side policies will increase the levels of human capital of an economy by support education and training institutions with subsidies or tax benefits and for market-based supply-side policies will reduce trade union power.
Direct and indirect effects could happen as the money supply increases; the direct effect being that people will demand more goods and services and the indirect effect being that people will save more money, depositing this in banks (Monetary Policy, n.d.). Therefore, excess reserves will also increase and the banks will be able to lend out more. Banks will motivate borrowing by lowering interest rates and this will increase the demand for investment and consumption and therefore aggregate demand will increase. Businesses respond to increased sales by producing more, thus increasing production. An increase in production would require more labor, thus lowering unemployment, and raises the demand for capital goods.
Economic growth is main factor in individual lifestyle in and economy so if there is growth, reduction of poor living standards will occur. These enhances consumer spending because it increases incomes. An increase in workers real wage rates will result higher purchasing power of a worker and therefore these workers who are also consumers tend to increase their spending, which causes a rise in aggregate demand and aggregate supply in a long run, because there is an increases in aggregate demand and aggregate supply over time it results to growth in output from firms and therefore firms need to employ more workers for continuous expansion and as a result reducing unemployment. A rise in output will also result to improved and more efficient public services as consumer real wage rates increases so does direct taxes, which results to growth in tax revenues government can increase spending on education and health. With all these in place firms become more confident and are able to achieve product efficiency even with even market conditions and so they invest more, and as stated in the first part of this essay investments is a main source of economic
Rational expectations theory also leads to the conclusion that, although the government can help reduce the unemployment rate, their actions will only lead to higher prices. Since unemployment is basically at equilibrium most of the time, any actions by the government to alter its level will unnaturally disrupt the economy's price level. Therefore, the government should not
How the Exchange Rate Affects Inflation If there is a depreciation in the exchange rate, this depreciation should cause inflation to increase. A depreciation means the currency buys less foreign exchange, therefore, imports are more expensive and exports are cheaper. Therefore, we get: • Imported inflation. The price of imported goods will go up because they are more expensive to buy from abroad • Higher domestic demand. Cheaper exports increases demand for UK exports.
They , as a result, would be more eager to learn and to enhance their capabilities. Conflicting purposes : With economic growth , some countries face the dominance of wealthy parts of the society that eventually affect how political parties would distribute revenue. • Pakistan has the world’s second-largest out-of-school population. This could be explained by the focus of politicians on facilitating tax evasion by the wealthy rather than enhancing learning opportunities for the poor. This thinking was adopted by not only one but successive governments which lead to low productivity growth of 3.09% for the period 2011-2020 ( forecasted) Education as a mean not an end : Following economic growth, governments recognize the
Therefor if a households income increased then their marginal propensity to consume increases. This means that a house hold will consume more when they earn more, however they will also increase their marginal propensity to save. Savings are considered to be a leakage into the circular flow of income as money is removed from that flow. The increase in spending will affect firms to increase their production in a ratio of 1:1. This means that if the households consume R100000 then the firm’s production will also increase by R100000.
Interest rates would also matter. If the country has a very high interest rate, there would be no borrowing. In the case of lower interest rates, borrowing is encouraged however if it is too low, it 's also a red signal because the country 's funds can end up being kissed goodbye. Exchange rates would also matter. For example the Philippine peso to US dollar would matter in this way- if the prices of dollars go up, Americans would invest in the Philippines because their money can do more investments.
It establishes the nexus between the tax system and economy of a country hence I will aim at showing the role of the tax law in increasing a country’s economic growth. It defines the concepts of tax law (and related terms such as taxation) and economic growth, as well as explain how they manifest in the society. I will then establish the relation between the two concepts and conclude with the various ways in which tax law increases economic growth. Economic growth refers to the increase in a country’s productive capacity as measured by comparing the gross national product (GNP) in a year with the GNP in the previous year. Economic growth therefore means an increase in real GDP.