price level, business cycle, unemplyment, tax Flashcards
what is tax base
more/less ppl fall into the tax net
why indirect tax stable than income tax
fluctuation in consumption is smaller than that of income
indirect revenue would fall less
is tips earned subject to taxation
yes
for salaries tax
causes of inflation
continuous increase in aggregate demand
continuous increase in the money supply
continuous increase in costs of production
price of imports of an importing-country continuously increase
why the increase in CPI would likely overstate the increase in the cost of living?
Quality of goods may increase due to technological advancements
people can find lower-price substitutes which also fulfill their needs
effect of recession
Falling or even negative real GDP growth
falling inflation or even deflation
falling business confidence, level of investment, consumption
why real income may fall even when nominal income increases
the real income of workers would fall if the percentage increases in price level are greater than the percentage increase in nominal wage.
what is the opportunity cost of holding cash instead of ibonds
the nominal return of the ibonds
how ibonds would relieve the effect of inflation
the ibonds help preserve the purchasing power of the invested sum of money because the interest return of ibonds will increase at the same rate as actual inflation
quantity theory of money
standard answer
QTM: MV=PY where M= money stock V= velocity of circulation of money P= general price level Y= real output assuming V constant An increase in M leads to an increase in P by the same percentage when Y is constant
Evaluate thorugh increasing salary tax to reduce budget deficit
+ve
If the increase in tax revenue due to the rise in tax rate outweigh the reduction in tax payment due to the reduction in the tax base( a fall in the number of tax payers as a result of disincentive effects to labour.
-ve
if the increase in tax revenue due to the rise in tax rate falls short of the reduction in tax payment due to the reduction in the tax base( a fall taxable income as a result of reduction in aggregate output)
is progressive tax consistent with the equity/equality prinicple
No (2018q6b!!!!!)
‘The new tax is no longer proportional, meaning that it is inconsistent with the equality principle’.
Dont fucking trust james
除非講緊standard tax rate of salary tax
why can the introduction of a general sales tax stabilise government revenue in times if economic downturn
Fluctuation in consumption is smaller than that of income.
Sales revenue generated from consumption would fall less than income tax revenue generated from income, thus stabilizing total government revenue, during economic downturn
explain the difference between using CPI and GDP deflator to measure the change in the price level
Coverage of goods
CPI includes products generally purchased by domestic households while GDP deflator includes products related to GDP
weights
CPI has fixed weight and need to be adjusted regularly while GDP deflator has variable weight.
effect of recovery
rising real GDP growth rate
rising inflation
rising levels of investment/consumption
reduction in unemployment rate
how can the tax base be widened
more people or commodities fall into the tax bracket
why the unemployment rate can still remain unchanged despite an increase in the employed population
both the labour force and the unemployed population increased at the same percentage
how a depreciation of Hong Kong dollar might lead to a higher inflation rate in Hong Kong
import price increase
hong Kong relies a lot on imported goods
cost of production materials increase
price of locally produced goods thus increased
and
price of imported consumer goods increase
so general price level increase contiunously
give one example of government revenue other than tax
land premium
investment income
why the government revenue from direct taxes is unstable
Direct tax vary with income
When economic conditions change, income will change and thus direct tax revenue will change also
why general sales tax can widen the tax base
most goods and services are untaxed before the introduction of the general sales tax but will be subjected to tax under the general sales tax
give two economic reasons for the government to levy tax on gasoline
reallocate resources so that the public can use more public transport but less private transport
a source of tax revenue
how the economic depression will affect the ratio of direct to indirect tax revenue in this economy
the effect is uncertain
direct tax revenue decrease when employment, wages, profits, transactions of property decrease
indirect tax revenue decrease as revenue from the stamp duties and rate will decrease
why the government should not adopt the capital gain tax
資產增值稅
high administrative cost
against the freedom to buy and sell
not fair if only apply to the property market
against simple taxation principle
explain the effect of general sales tax on income distribution
Same amount of tax for the same good paid by people with different income
the low income group pay a larger portion of their income than the high income group on the general sales tax
so it will lead to a more uneven income distribution
why total salaries tax revenue will increase when there is inflation
nominal income increase
more people are put into the tax net
how a refund of salaries tax affect the wealth gap
there will be a widen wealth gap
High income taxpayers were rebated a larger amount of money than low income tax payers
The government rebated money to the taxpayers but no money to the poor who were non taxpayers
suggest some government measures to obtain enough capital to build a new infrastructure and state the disadvantage of each of them
raise direct tax
it will decrease work incentive
raise indirect tax
more uneven distribution of real income
issue government bond
the economy has to bear interest cost
invite private sector participation
reduce government say in the related service
cut other government expenditures
less public services in other aspects
aims of fiscal policy
high level of employment
raising living standard or per capita GDP
more even distribution of income
control of inflation
gasoline consumption is subject to tax?
yes
for duty rate
is the estimated rental value of owner-occupied residential flats subject to property tax
no
as its owner-occupied
property tax is about renting the flat to others
if the nominal wage was reduced, explain whether their real wage rate must also have decreased
not necessary decreased,
as the real wage rate will increase if the percentage decrease in general price level is greater than the percentage decrease in the nominal wage rate
characteristics of peak/prosperity
real gdp growth rate reaches the highest value
general price level reaches the highest value
unemployment rate reaches the lowest value
why the government should adopt the capital gain tax
資產增值稅
increase government revenue
widen the tax base
discourage speculation in the property market
what does increase progressivity in salaries tax means
the tax burden of taxpayers with higher salary income increases at a faster rate than the low-income group
how will the general sales tax affect the income distribution
the low-income group pay a larger proportion of their income than high-income group on the general sales tax
more uneven income distribution
characteristics of trough
Unemployment is at a high level
Inflation is at a low level
Business confidence is at a low level
real GDP growth rate is at a low level
side effect of the contactionary fiscal policy
negative output effect (fall in gdp) due to a reduction in government expenditure and thus AD/ due to a rise in income tax which would lower consumption/investment demand and thus aggregate demand
negative effect on labour supply and thus on employment as a result of high income tax
advantage of using monetary policy to finance the fiscal deficits than using fiscal policy
an increase in money supply would lower the interest rate and raise investment, leading to an increase inr eal output in the short run. Given idle resources in the economy, more labour would be used to produce the bigger output, implying an increase in employment or decrease in umemployment.
disadvantage of using monetary policy to finance the fiscal deficits than using fiscal policy
in the long run, an increase in money supply would not create any effect on output and employment. But if the fiscal deficits grow so fast that the money supply has to be increase at a higher rate that of real output, high inflation would even arise.
why direct tax revenue fluctuates more than GDP when there is a change in macroeconomic condition
progressive taxation
what is the effect of increasing the progressivity of salaries tax?
high-income taxpayers pay more
low-income taxpayers pay less
aftertax income inequality would thus be reduced
is loss of skills a loss to the society by unemployed
yes
mock
is increase in government expenditure on public assistance a loss to the society by unemployed
no
mock
what is the effect of providing government subsidies on income equality
it will worsen the fiscal balance and so it may result in a tax increase in the future. Future taxpayers mainly young people may have to pay more taxes and income inequality between generation may worsen
what will be observed in the labour market after the imposition of minimum wage
low-skilled workers may be unemployed
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