Since GDP measures the aggregate output of the whole economy by summing up personal expenditure, government expenditure, investment and net exports, an increase in income will also increase GDP. Increased income means that consumers are making money from producing and selling more, thereby increasing the country's GDP. “An increase in income taxes reduces disposable personal income and thus reduces consumption causing the aggregate demand curve to shift leftward by an amount equal to the initial change in consumption that the change in income taxes produces times the multiplier. Also, a reduction in income taxes increases disposable personal income, increases consumption, and increases aggregate demand.” (Rittenberg L. et al., 2009). As personal income increases, consumption will increase, as consumption has increased so companies will have to produce more and to do so they must invest more, causing an increase in investment.
While some see inflation as being essential for a tangible economic growth, others believe that it hinders economic performance and growth. The belief that inflation hinders economic growth by having a negative impact is associated with scholars such as Fisher (1993), Bruno and Easterly (1995) as well as Barro (1995). Their beliefs might have been related to the fact that “in 1970s, nations with high inflation particularly the Latin American countries begun to experience a decrease in growth rates and thus caused the emergence of the views stating that inflation has negative effects on the economic growth instead of the positive effects” (Kasidi and Mwakanemela, 2013). Wai (1995) observe no
The main issue about growth-versus-poverty debate remains central in the globalization. The impact of growth on poverty reduction depend country policies and strategies. In general, the number of poor people in the developing countries has been decreased in the recent years as a result of sustained economic growth. If economic growth provides equal benefits all in a society, then incomes have to grow at the same rate as an average income. From various empirical studies that have been done, there seems to be different results on the impact of growth on poverty reduction.
In USA the revenues from gas taxes are used in many ways, for example, to reduce budget deficits, to decrease existing marginal tax rates (the rates on an additional dollar of income), or to offset the costs that gas tax would impose on certain groups of people. Raising the cost of using gas by imposing tax would increase the cost of producing goods and services such as electricity and transportation. Sometimes gas tax may have a negative effect on the economy. High price of goods and services can diminish the purchasing power of earnings of people and reduce their real wages, which would have an effect of reducing the amount of hours worked or goods produced by people, and therefore, decreasing the overall supply of labor, amount of money invested, further reducing total output of the country's economy. In USA taxes raised from taxing gas are also used to offset or reduce some of the negative economic effects of other taxes, for example, to reduce the existing marginal rates of income or payroll taxes, which would have positive effects on the
Tax Policy: The government could increase taxes on income. This reduces the disposable income of people. Consequently, there will be a reduction in their demand for goods and services. ii. In order to control inflation, the government could increase its borrowing from the Public and at the same time spend less of its revenue.
The economic growth of a country is associated in rising incomes, related increase in saving, consumption and investment. The change in the economic growth occurs due to the change in economic, political and social factors. Whereas economic factors consist of inflation, gross domestic product, consumer price index, employment rate, domestic and foreign investment, trade openness, exports, imports etc. (Axthur A. J., 1964) Economic growth leads to the reduction in poverty. Without economic growth it is impossible to make any meaningful and sustained reduction in poverty.
Increased rate of Consumption will contribute to government tax revenue. When level of consumption decreased than it will contribute to increase in level of savings and investment. Both the above mentioned cases will
Macroeconomics Internal Assessment Keigo Tanaka This article is about China implementing an expansionary fiscal policy, decreasing the tax but mainly increasing government spendings to improve livelihoods and attempt economic growth. Fiscal policy refers to increasing or decreasing tax and government spending according to it being expansionary or contractionary, affecting aggregate demand. In this case it is expansionary, as China is attempting to open up the economy. Unemployment refers to the situation where individuals are actively seeking but unable to find work. Lastly, although there are various aspects in the term, economic growth refers to an increase in real GDP over the previous year.
These studies have continued to generate a series of debate among scholars. Some scholars argued that increase in government expenditure on socioeconomic and physical infrastructure boosts economic growth. However, there is another group who do not agree that an increasing government expenditure encourages economic growth, instead they assert that higher public expenditure may slow down overall performance of the economy by crowding out private
This would lead to an increase in national income by a multiple. Here, economic growth would be achieved but it may undermine the objective of a balance of payments surplus. A rise in national income may increase the demand for imports as they are positively associated with national income. The rise in demand for imports may reduce a trade surplus, and could also turn it into a trade deficit. When an economy has a stable rate of economic growth, it produces more output.