Th4.5: ^^ Real Output and Employment Flashcards
1
Q
What will a rise in direct taxes do?
A
reduce the level of disposable income an individual has, which will cause a fall in their spending and thus a fall in AD - could also cause fall in leftover profits for businesses and therefore a fall in investment
2
Q
The effect this has on output will depend on…
A
where the economy is - whether it is at full employment or not
3
Q
On top of this, what will decrease SRAS?
A
higher indirect taxes and NICs increase costs for firms, decreasing SRAS
4
Q
What will this impact depend on?
A
again, where the economy is producing at
5
Q
It can be argued that income taxes cause a…
A
disincentive to work and therefore reduce LRAS as the most skilled workers go overseas and more people become inactive
