Impact of a rise in indirect taxes

Question 1

impact on inflation

Answer 1

higher in short run as businesses pass on tax

Question 2

impact on economic growth

Answer 2

slower as real incomes and demand falls

Question 3

impact on unemployment

Answer 3

higher if AD weakens

Question 4

impact on balance of trade in goods and services

Answer 4

improved, falling real incomes may cause demand for imports to contract

Question 5

impact on spare capacity in the economy

Answer 5

rises from weaker demand

Question 6

impact on business investment

Answer 6

decline if businesses are hit by lower profits and weaker consumer spending

Question 7

impact on govt fiscal balance

Answer 7

short run improvement from higher taxes but risk of falling revenues in medium term