1.Distinguish between taxes on products and taxes on production (8)
2.How will an increase in investment spending influence the economy?(8)
1. Taxes on products, also known as indirect taxes or consumption taxes, are taxes levied on the sale of goods and services. These taxes are typically included in the price of products and are ultimately paid by consumers. Examples of taxes on products include sales tax, value-added tax (VAT), and excise tax on specific goods like alcohol or tobacco.
On the other hand, taxes on production, also known as direct taxes, are taxes imposed on the factors of production and production activities. These taxes are typically levied on businesses and can include taxes on corporate profits, property taxes, and payroll taxes. Unlike taxes on products, taxes on production are not directly visible to consumers but are ultimately passed on through higher prices or reduced wages.
In summary, taxes on products are paid by consumers when purchasing goods or services, while taxes on production are paid by businesses and can indirectly affect consumers through higher prices or reduced wages.
2. An increase in investment spending can have various effects on the economy:
a) Increased economic growth: Investment spending is a key driver of economic growth as it increases capital stock and productivity. When businesses invest in new technologies, equipment, or infrastructure, it can lead to higher production capacity and efficiency, resulting in increased output and economic growth.
b) Job creation: Investment spending often leads to the creation of new jobs. When businesses invest in expanding their operations or setting up new facilities, they require additional workers to support these activities. This can help reduce unemployment and boost employment levels in the economy.
c) Increased business profitability: Investment spending can lead to increased business profitability in the long run. By investing in new technologies, businesses can improve their efficiency and reduce production costs. This, in turn, can lead to higher profits and potentially attract more investment in the future.
d) Improved infrastructure and public services: Investment spending can also contribute to the development of infrastructure and public services. For example, investment in transportation infrastructure or renewable energy can enhance the overall quality of services available in an economy, making it more attractive for businesses and improving the standard of living for individuals.
However, it is important to note that the impact of increased investment spending can vary depending on other economic factors, such as the overall state of the economy, government policies, and investor confidence.