Question

How increment or decrement of tax affects inflation?

Answer 1

Taxation is the vital component of $\bf {Treasury \:Policy}$ of the government. Taxes have direct impact on inflation in an economy.


1. $\bf\underline{Increment \:in \:taxes :-}$

Inflation is known to be a condition where there the flow of money increases in an economy as result prices increase unduly. In such a situation if taxes are increased then the situation of $\bf {Inflation \:would \:be \:controlled}$. As people would have to pay more taxes by which their financial power will be reduced. The flow of money in the economy would be reduced. The situation would be of a $\bf {balanced \:economy}$.



2. $\bf\underline{Decrement \:in \:taxes :-}$

Decrement in taxes $\bf {increases \:inflation}$. To control inflation, it is required that the flow of money must be reduced. But if taxes are less then people would pay less money in taxes and the whole money would be added into the endless flow of money. This will create the situation of $\bf {imbalanced \:economy}$.

Answer 2

Answer:

Taxation is the vital component of Treasury Policy TreasuryPolicy of the government. Taxes have direct impact on inflation in an economy.

$1. \bf\underline{Increment \:in \:taxes :-}Incrementintaxes:−$

Inflation is known to be a condition where there the flow of money increases in an economy as result prices increase unduly. In such a situation if taxes are increased then the situation of Inflation would be controlled Inflationwouldbecontrolled . As people would have to pay more taxes by which their financial power will be reduced. The flow of money in the economy would be reduced. The situation would be of a \bf {balanced \:economy}balancedeconomy .

$2. \bf\underline{Decrement \:in \:taxes :-}$

Decrement in taxes \bf increases inflation increasesinflation . To control inflation, it is required that the flow of money must be reduced. But if taxes are less then people would pay less money in taxes and the whole money would be added into the endless flow of money. This will create the situation of \bf imbalanced economy imbalancedeconomy .