Q5.
What will be the effect of increase in tax by government?
a. Increase in cost of production
c. Increase in profit margin
b. Creates fear in the mind of investors d. Increase in competition
Answers
Answer:
a
Explanation:
In general, when the government brings in more in taxes than it spends, it reduces disposable income and slows the growth of the economy. ... The tax increase lowers demand by lowering disposable income. As long as that reduction in consumer demand is not offset by an increase in government demand, total demand decreases.
Answer:
Answer is option a - Increase in cost of production
As tax rate increases the production cost also increases because ultimately consumer bears the tax i.e., manufactures include the tax in their selling price during the sale of the product which results in increase in the cost of production.
Explanation:
option c is not possible because we are paying more tax to the government than we used to which leads to decrease in profit margin.
When there is an increase in tax rate, competition reduces as no one will be willing to pay more tax, so option d is not possible.
From the supply side, Specific tax preferences can have an impact on how economic resources are allocated, whereas high marginal tax rates can discourage work, saving, investing, and innovation. Tax cuts, however, can also reduce long-term economic development by raising deficits. Thus, the long-term impacts of tax policies are dependent on both their deficit and incentive effects.
In general, the reduction of disposable income and the slowness of economic expansion occur when the government collects more taxes than it spends.
Due to decreased disposable income, the tax rise reduces demand. Total demand declines as long as the decline in consumer demand is not accompanied by an increase in government demand.
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