Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Higher unemployment due to decreased disposable income
B
Lower inflation because of increased consumer spending
C
Increased inflation as businesses raise prices to cover tax costs
D
Decreased unemployment due to higher government revenue
Understanding the Answer
Let's break down why this is correct
Answer
When a government increases personal income taxes, people have less money to spend. This can lead to a decrease in overall consumer spending, which is important for businesses and the economy. According to the Phillips Curve, this situation might lead to lower inflation but could also increase unemployment because businesses may make less profit and hire fewer workers. For example, if a family has to pay more in taxes, they might cut back on eating out or shopping, which means restaurants and stores may see fewer customers. So, the immediate effect of higher taxes could be slower economic growth and potentially rising unemployment.
Detailed Explanation
When taxes go up, people have less money to spend. Other options are incorrect because Some might think that higher taxes mean people will spend more; It's a common belief that businesses will raise prices when taxes increase.
Key Concepts
Phillips Curve Dynamics
Fiscal Policy Impact on Economy
Inflation and Unemployment Relationship
Topic
Phillips Curve Dynamics
Difficulty
easy level question
Cognitive Level
understand
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