Question

Taxation, government intervention, supply and demand, and economic growth: Discuss the relationship between taxation, government intervention, and supply and demand and its relationship to economic growth. How do theese economic relationships differ between the United States economy and the economy in China? What advise would the United States be able to give China in order to increase these areas and grow their economy further?

Answer 1

Government intervention in the form of increasing taxation rate in the economy will lead to fall in demand from the consumers and this fall in the demand will lead to fall in the economic growth as total national output of the economy will fall. Considering the economy of China, where government intervention is more and markets are not free to take their decisions independently , their is fall in the economic growth of China because of lack of autonomy to the markets.

The best advice that can be given to China by the United States is increase in autonomy to the markets and private players in the market. Increase in government intervention leads to fall in the economic growth of the country. This has impacted overall output of the economy. Thus, the political economy of China should move to a more free economy and government should give more powers in the hands of private players.