If both individual and corporate tax rates in a particular country unexpectedly decrease, this will likely...
If both individual and corporate tax rates in a particular country unexpectedly decrease, this will likely ______ consumption and _______ capital investment for that country.
A- stimulate, stimulate
B- stimulate, discourage
C- discourage, stimulate
D- discourage, discourage
E- not affect, not affect
Homework Answers
Correct answer: A. stimulate, stimulate
A decrease in individual tax rate give more money to individual to spend and it will stimulate the consumption.
A decrease in corporate tax rate will increase the profitablility of company and also reduce the cost of capital of various investment projects. Thus, it will stimulate capital investment for that country.
However, Both tax cut will increase the Government fiscal deficit.
Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.
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