ECONOMICS
ECONOMIC DEVELOPMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Decrease in consumption, decrease in AD, decrease in income tax revenue, decrease in economic development.
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Increase in consumption, decrease in AD, increase in income tax revenue, decrease in economic development.
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Increase in consumption, increase in AD, increase in income tax revenue, increase in economic development.
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Decrease in consumption, increase in AD, decrease in income tax revenue, increase in economic development.
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Detailed explanation-1: -The correct option is (b) decrease AD. When taxes are increased, the disposable income of people falls leading to a fall in the consumption expenditure. This reduces AD. Along with this, if the government reduces its purchases, government spending also falls.
Detailed explanation-2: -Answer and Explanation: The consistent increase in productivity and growth in developing countries depends on protecting property rights and enforcing contracts. This is so because protecting property rights will lead to regular investment; the production level will increase the economic rate.
Detailed explanation-3: -An increase in government spending raises aggregate demand directly. Lower taxes, as well as higher transfer payments, raise aggregate demand indirectly by increasing disposable income, which then leads to higher consumption.
Detailed explanation-4: -Changes in Income Taxes Income taxes affect the consumption component of aggregate demand. An increase in income taxes reduces disposable personal income and thus reduces consumption (but by less than the change in disposable personal income).