Question

1a. Does every dollar spent have an “equal” influence on an economy, why or why not?...

1a. Does every dollar spent have an “equal” influence on an economy, why or why not? Does every dollar spent have an “equal” impact on GDP? Are these two questions different? Explain.

1b. Explain (with a paragraph or two) why the concept/idea of taxes is good for our country. What would happen if we were a society without taxes?

Homework Answers

Answer #1

a)

Every dollar spent does not have equal influence on an economy. Influence of every dollar on economy depends on whether it is spent on productive activities or unproductive activities. Dollar spent on productive activities would have disproportional influence on economy.

Impact of every dollar spent on economy depends on consumption level or marginal propensity to consume( MPC). Impact shall be larger if level of MPC is larger.

b)

Idea of taxes is good for economy. Taxes assist in collecting revenue for government and further, taxes are used to establish just and equitable society.

Society would not have provision of public goods in absence of taxes. people would not be ready to voluntarily contribute towards the cost of public goods and there would be underproduction of public good.  

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