Question

Assume the government would like to incentivize saving by increasing the tax advantage on registered savings programs. Discuss the impact of this policy on the savings and investment in the economy as well as the GDP. Don't stop at the initial change and discuss the further effects. Who would benefit from this change? (Drawing a sketch graph(for your own) and describing the movement of the curves in the graph may be a good idea)

Answer 1

Reduction in the taxes has an adverse effect on the income and demand as well as GDP. When the government reduces its taxes there is an increase in disposable income. This leads to increased demand and rise in production and increase GDP. Rise in the marginal rate leads to increase in the investment or consumption.if there is an increase in the rate of taxes then the ratio of investment with consumption also increases. Savings can lead to more of capital investment to a higher rate of growth of economy. The growth rate of GDP is higher when savings rate is increasing.tax helps in cutting the demand which gets boosted by the increased disposable income by encouragement to the business for further investment. The rivers is done by the increase in taxes. There can be substantial effects of demand in case of weak economy. Increase tax to the GDP means tax buoyancy of economy is strong as the revenue from taxes increase with the increase in GDP of a country.