ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Imposition of taxes results in the reduction of disposable income of the taxpayers. This will reduce their expenditure on necessaries which are required to be consumed for the sake of improving efficiency. As efficiency suffers ability to work declines. This ultimately adversely affects savings and investment.

Detailed explanation-2: -A reduction in income taxes increases disposable personal income, increases consumption (but by less than the change in disposable personal income), and increases aggregate demand.

Detailed explanation-3: -A reduction in taxes will increase disposable income. From the consumption function, this results in an increase in consumption equal to the marginal propensity to consume times the increase in disposable income. The average propensity to consume decreases.

Detailed explanation-4: -Disposable income, also known as disposable personal income (DPI), is the amount of money that an individual or household has to spend or save after income taxes have been deducted.