ECO 403 GDB 2 IDEA Solution Fall 2021
IDEA
Primarily
through their impact on demand. Tax cuts boost demand by increasing income and by encouraging businesses to rent and invest more. Tax increases do the reverse. These demand
effects are often substantial when the economy is weak but smaller when it's operating near capacity.
In general, rate increases can decrease economic activity through Short-run
demand-side effects ( reducing actual GDP below potential GDP as lower income causes declines in consumption and/or investment) and/or
long-run supply side effects ( reducing potential GDP through behavioral
response).
Initially, tax reduction increases consumption, then firm's reduce output, and income falls toward a replacement equilibrium .
The tax for the policy issues regarding long-term
macroeconomic stability also as economics development of Bangladesh. This paper focuses on
the impact of indirect taxation on GDP and demonstrates the influence that
taxation has on the tax paying individual and business .
