Question

1. What are the three categories of revenue (taxes)? What are the types of spending?

Answer 1

The three categories of taxation are:

(1) Progressive taxation is one in which as the income increases, the average tax rate also increases.

(2) Proportional taxation is one in which as the income increases, the average tax rate remains the same.

(3) Regressive taxation is one in which as the income increases, the average tax rate decreases.

The four types of spending are as follows:

A) Private final consumption expenditure: This component of GDP shows the consumption spending by households. It measures the money value of goods and services which are purchased by households during a period of account. Private consumption expenditure includes expenditure on all categories of goods and services like expenditure on durable goods, non-durable goods, etc.

B) Government expenditure: This component includes the government spending on goods and services. It includes purchase of goods and services by the government or wages or salaries paid by the government.

C) Investments: Investment is the addition to the physical stock of capital during a period of time. Investment includes construction of building, machinery, plant, etc. This component of GDP includes: change in stock, business fixed investment and public investment.

D) Net exports: It is the difference between export and imports of country. When exports of a country are greater than its imports then there are positive net exports and when exports of a country are smaller than its imports then there are negative net exports.