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Which of the following best describe(s) the concept of Fiscal Drag?
- a)Decrease in the GDP growth rate due to higher Fiscal Deficit.
- b)Increase in tax collection due to higher rate of inflation.
- c)Decrease in aggregate demand, when the people move from low tax bracket to high tax bracket.
- d)Both (b) and (c) scrutiny
Correct answer is option 'D'. Can you explain this answer?
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Which of the following best describe(s) the concept of Fiscal Drag?a)D...
Fiscal drag is a concept where inflation may push more taxpayers into higher tax brackets. Therefore, fiscal drag has the effect of raising the government tax revenue without explicitly raising the tax rates. This fiscal drag also has the effect of decreasing the aggregate demand in the economy and, thus, viewed as an automatic fiscal stabiliser.
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Which of the following best describe(s) the concept of Fiscal Drag?a)D...
Fiscal Drag Concept Explanation:
Definition:
Fiscal drag refers to a situation where individuals are pushed into higher tax brackets due to inflation and rising incomes, leading to an increase in their tax liabilities.
Causes of Fiscal Drag:
- Increase in tax collection due to higher rate of inflation: As prices rise, individuals' nominal incomes increase, pushing them into higher tax brackets even though their real purchasing power may not have increased.
- Decrease in aggregate demand: When individuals move from lower tax brackets to higher tax brackets, they have less disposable income to spend, leading to a decrease in overall consumer demand.
Impacts of Fiscal Drag:
- Higher tax burden: Individuals in higher tax brackets end up paying more taxes, reducing their disposable income.
- Decreased consumer spending: With less disposable income, individuals are likely to spend less on goods and services, leading to a decrease in aggregate demand.
- Slower economic growth: The decrease in consumer spending can result in slower economic growth as businesses experience lower demand for their products and services.
Conclusion:
In conclusion, fiscal drag can have significant implications for both individuals and the overall economy, leading to higher tax burdens, decreased consumer spending, and potentially slower economic growth.
Definition:
Fiscal drag refers to a situation where individuals are pushed into higher tax brackets due to inflation and rising incomes, leading to an increase in their tax liabilities.
Causes of Fiscal Drag:
- Increase in tax collection due to higher rate of inflation: As prices rise, individuals' nominal incomes increase, pushing them into higher tax brackets even though their real purchasing power may not have increased.
- Decrease in aggregate demand: When individuals move from lower tax brackets to higher tax brackets, they have less disposable income to spend, leading to a decrease in overall consumer demand.
Impacts of Fiscal Drag:
- Higher tax burden: Individuals in higher tax brackets end up paying more taxes, reducing their disposable income.
- Decreased consumer spending: With less disposable income, individuals are likely to spend less on goods and services, leading to a decrease in aggregate demand.
- Slower economic growth: The decrease in consumer spending can result in slower economic growth as businesses experience lower demand for their products and services.
Conclusion:
In conclusion, fiscal drag can have significant implications for both individuals and the overall economy, leading to higher tax burdens, decreased consumer spending, and potentially slower economic growth.
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Which of the following best describe(s) the concept of Fiscal Drag?a)Decrease in the GDP growth rate due to higher Fiscal Deficit.b)Increase in tax collection due to higher rate of inflation.c)Decrease in aggregate demand, when the people move from low tax bracket to high tax bracket.d)Both (b) and (c) scrutinyCorrect answer is option 'D'. Can you explain this answer?
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Which of the following best describe(s) the concept of Fiscal Drag?a)Decrease in the GDP growth rate due to higher Fiscal Deficit.b)Increase in tax collection due to higher rate of inflation.c)Decrease in aggregate demand, when the people move from low tax bracket to high tax bracket.d)Both (b) and (c) scrutinyCorrect answer is option 'D'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Which of the following best describe(s) the concept of Fiscal Drag?a)Decrease in the GDP growth rate due to higher Fiscal Deficit.b)Increase in tax collection due to higher rate of inflation.c)Decrease in aggregate demand, when the people move from low tax bracket to high tax bracket.d)Both (b) and (c) scrutinyCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following best describe(s) the concept of Fiscal Drag?a)Decrease in the GDP growth rate due to higher Fiscal Deficit.b)Increase in tax collection due to higher rate of inflation.c)Decrease in aggregate demand, when the people move from low tax bracket to high tax bracket.d)Both (b) and (c) scrutinyCorrect answer is option 'D'. Can you explain this answer?.
Which of the following best describe(s) the concept of Fiscal Drag?a)Decrease in the GDP growth rate due to higher Fiscal Deficit.b)Increase in tax collection due to higher rate of inflation.c)Decrease in aggregate demand, when the people move from low tax bracket to high tax bracket.d)Both (b) and (c) scrutinyCorrect answer is option 'D'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Which of the following best describe(s) the concept of Fiscal Drag?a)Decrease in the GDP growth rate due to higher Fiscal Deficit.b)Increase in tax collection due to higher rate of inflation.c)Decrease in aggregate demand, when the people move from low tax bracket to high tax bracket.d)Both (b) and (c) scrutinyCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following best describe(s) the concept of Fiscal Drag?a)Decrease in the GDP growth rate due to higher Fiscal Deficit.b)Increase in tax collection due to higher rate of inflation.c)Decrease in aggregate demand, when the people move from low tax bracket to high tax bracket.d)Both (b) and (c) scrutinyCorrect answer is option 'D'. Can you explain this answer?.
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