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If indirect taxes in an economy are increased, then which of the following can occur?
1. GDP at factor cost increases
2. GDP at factor cost decreases
3. GDP at market price increases
4. GDP at market price decreases
Select the correct answer using the codes given below.
  • a)
    1 only
  • b)
    2 and 3 only
  • c)
    3 only
  • d)
    4 only
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
If indirect taxes in an economy are increased, then which of the follo...
Answer & Explanation : (c) 3 only.
GDP (market price) = GDP ( factor cost) + indirect taxes – subisdies. This equation makes it clear that any increase in indirect taxes will increase the GDP at market prices.
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Most Upvoted Answer
If indirect taxes in an economy are increased, then which of the follo...
Anwer 2 also correct GDP at factor cost = GDP at mp- indirect tax + subsidy
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Community Answer
If indirect taxes in an economy are increased, then which of the follo...
Effect of increasing indirect taxes on GDP:
Increasing indirect taxes can have a significant impact on the overall GDP of an economy. Let's break down the possible outcomes:

1. GDP at factor cost increases:
- When indirect taxes are increased, the cost of production for businesses also increases.
- This leads to a decrease in the profitability of businesses, which can result in lower investments, production, and ultimately GDP at factor cost.

2. GDP at factor cost decreases:
- As mentioned above, an increase in indirect taxes can lead to a decrease in GDP at factor cost due to reduced profitability and economic activities.

3. GDP at market price increases:
- Despite the negative impact on GDP at factor cost, increasing indirect taxes can lead to an increase in GDP at market price.
- This is because indirect taxes are included in the final price of goods and services, leading to higher revenues for the government and an apparent increase in GDP when measured at market prices.
Therefore, the correct answer is option 'C' - 3 only. Increasing indirect taxes can lead to a rise in GDP at market price while potentially causing a decrease in GDP at factor cost due to the impact on business profitability and economic activities.
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If indirect taxes in an economy are increased, then which of the following can occur?1. GDP at factor cost increases2. GDP at factor cost decreases3. GDP at market price increases4. GDP at market price decreasesSelect the correct answer using the codes given below.a)1 onlyb)2 and 3 onlyc)3 onlyd)4 onlyCorrect answer is option 'C'. Can you explain this answer?
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