In: Economics
SOLUTION :
From the above information
it was relevant to Equilibrium output and Price levels resulting from the change in the Tax rates. Let say that the condition between Tax rate and Equilibrium price / output is inverse. then, An increase in tax rate may decreases price and output.if the tax rate increases mostly effects the business and it leads to decrease in investment. this is all about while tax rate fluctuations according to the change in tax rates.
As per consumption assumptions we can drawn the following conclusions :
if the consumption decrease then AD curve shift towards to the left. i.e., Equilibrium Output and Price level should both Decrease. Here, the AS curve should not affect because input prices didn't change ,
change in tax revenues for the government in the new equilibrium :
If the government increases the taxrate tax rate will Increase and investments will not effect ,it is a beneficial to the department. And In Long run , the decision to increase tax rate will effect the consumers decision and it leads to people also force to consume less and investment in the business also less, Impact on Tax revenue will return to the Equilibrium point.
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