Hi all.
Its been quiet here last few months I see!
If anyone has done CT7 part 3 quiz (after chapt 15 in the notes), could you please lend me a helping hand?
Question 10 asks:
Which of the following would be least likely to produce inflationary pressures in the economy:
A - decrease in range of goods exempted from indirect taxes
More goods with indirect taxes being reflected in increased prices would presumably count as inflationary.
B - increase in excise duties
Again, the duties imposed would flow through to the customer in the form of price rises.
C - increase in govt social security expenditure
This would have to be paid for by increased taxation or more public debt. In the former case it is a transfer of wealth from one section of society to another via the goverment, and may not have much effect on inflation. In the latter, an increase in the money supply should produce inflationary pressures as predicted by the equation whose name I cant remember.
D - increase in standard rate of income tax
Depends on how this money is used but if it is not used for Gov expenditure then it should reduce demand and therefore prices, or at least help stem the increase in prices.
The correct answer is D, but my question is what is the reasoning (for all options A-D)?
Thanks for your help. Good luck and hope all is going well for you!!
Nadeem
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