Secondly high taxes create disincentives to work and this can be analysed through income and substitution effects. The substitute for work is leisure time and when taxes increase the opportunity cost for leisure time decreases, also people will have to work longer hours to earn the same post tax income causing disincentives as it reduces living standards as people must work longer and harder for the same incomes. This will create disincentives to work and so lead to a reduction in the labour force meaning less people in jobs and so less people paying income tax. Also as people earn less this way consumption in the economy falls therefore reducing the governments VAT recipts and corporate tax revenues and businesses make lower profits. This will lead to increases in the fiscal deficits as the government earns less and may be spending more in forms of social protection i.e.
Less investment abroad means that more money can be spent in the UK economy which greatly effects the current account. Investing in firms situated in the UK means that they will be able to increase their production and become more efficient meaning that their prices will be more competitive and so will export more. So combing
Our money supply affects the country’s economy, interest rates, and borrowing. Erratic increase or decrease in prices of commodities of other items, if continued unabated for a substantial period, can be a source of imbalance in the economy. Why it is important to increase economic growth? It is important to increase economic growth to keep the economy moving forward to prevent job losses, and business closures, which in return you will have, a low money supply. My rationale for the Reserve Requirements would be by lowering the reserve requirements, and the banks will be able to have more money to loan, and then increasing the money supply.
The severity of the decrease depends on how much the taxes have changed by. An increase in either Income tax or VAT/GST will result in a direct decrease in consumption, which will then result in a decrease in aggregate demand and inflation will go up. Government spending is another way to either decrease or increase consumption. If the government spending is decrease it will not affect consumption directly however it will cause a snowball effect (after government spending has decreased unemployment will increase and income will decrease), which will cause consumption to decrease, therefore leading to investments decreasing and aggregate demand increasing A change in interest rates will also increase or decrease the consumption level. If I take the contradictory monetary policy as an example it will show that; an increase in interest rates will affect investments by decreasing them and that leads to a decrease in consumption, which then continues onto aggregate demand which decreases causing inflation to decrease.
A current account deficit means the country imports a greater value of goods and services than it exports. To reduce a current account deficit we need to either increase the value of exports and or reduce imports. Supply side policies aim to increase the productivity of the economy. If the manufacturing sector becomes more productive, the relative cost of British goods will fall and therefore they will become more competitive. This will help increase exports and reduce the current account deficit.
This would naturally also lead to a rise in jobs available, leading to an overall rise in general household income and GDP. Another advantage to the government spending cuts would be that the economy would be able to get back on track and
This would increase the costs of goods sold and lower the net income for the company for that accounting period. The company would have to pay less tax on the lower net income. If the FMCG decided to use the FIFO method, the costs of goods sold would be lower and the net income would be higher. Thus, the company would have to pay more tax at the end of the accounting period. Low income tax payments are why one-third of U.S. companies use LIFO (Harrison, Horgren, & Thomas, 2010).
The federal government attempted to fix the economic problems through costly economic stimulus packages, which only resulted in further national debt. So one would have to ask if the fiscal policy the government is currently using is working. Many economist say America is suffering from debt deflation. Americans are trying to pay down debt by spending less, but this is causing their debt problems to worsen. Economists believe that government spending should rise temporarily so the drop in private spending can repair itself.
Surpluses can reduce taxes which saves taxpayers moneys. This gives taxpayers more savings and also puts more money into the economy in other areas. This will in turn stimulate the economy by causing banks to lend more money and lower interest rates. When there is a deficit taxpayers can feel more hardship due to increase taxes and less money being brought into households. This will cause less money to flow through the economy eventually causing lenders to reduce the amount of loans being given.
With higher GDP the govt will collect more taxes; this is because people will pay more income tax and VAT. This is beneficial because the govt can use this increased revenues to reduce the level of government borrowing and/or spend more on public services and investment in the country infrastructure. Higher economic growth will lead to an increase in demand for labour as firms will be producing more. Therefore unemployment will fall, this has various advantages such as lower govt spending on benefits and less social problems. However economic growth has various costs.