Powered by ProofFactor - Social Proof Notifications

Exploring the Complexities of GDP Measurement, Inflation’s Effects, and Taxation Systems in Economics

Dec 29, 2022 | 0 comments

blog banner

Dec 29, 2022 | Essays | 0 comments

1) Explain the meaning of GDP and how it can be measured

The gross domestic product is an economics statistics often used to measure the level of productivity within a country. Countries often engage in various production methods and production of goods, each of which has different values. GDP shows the true value of all goods and services within a particular period in the country. It allows the country to focus policies on goods of high value and services with excellent performance therefore raising the level of welfare and wellbeing of its own citizens. GDP is measured on the following ways:

Production system, which measures the cost of inputs versus the value of the output. This system is subject to double costs, to avoid this, the GVA (gross value added) at each stage is aggregated and re-calculated.
Cost of expenses: the production system captures the cost of maintaining the production process, the expenditure captures the amount spent by corporations and manufacturers in the market.
Income system, which measures the average wages of consumers within the country and therefore their ability to spend on goods.

2) Harmful Effects of inflation and contrast with deflation

Low income earners are often forced to regress in terms of spending. The little they have is not sufficient for the average spending in the households. It is also to be noted that real incomes that is the amount actually earned by individuals falls lower, (Berlatsky 2013).
Businesses and entrepreneurs are no longer confident of what their actual costs are, therefore they become uncertain, lowering the rate of investments in the country.
Operators within the financial markets often increase interest rates in which they can cushion themselves against uncertainties of the future. The common idea is that borrowers may not be able to pay back loans and therefore cost of borrowing is increased greatly.

Deflation on the other hand, encourages investment as people have more to spend while at the same time reducing the borrowing rates. However, the cost of labor is greatly reduced forcing individuals to work more hours to earn sufficient income.

3) Inflation is a subjective experience

Inflation results from an accumulation of past events which persist and remain unsolved over a period of time. In essence inflation does not occur until stakeholders in the market begin preparing and reacting to current situations which in turn lead to inflation.

A good example is in the case of workers, in a situation where workers predict that inflation will occur in the near future, they will increase their demand for higher pay. This will in turn increase the final price for goods, which means that inflation happens immediately rather than on the future. In the United States just before the election years, there is often prediction of inflation which means that workers demand more pay, employers charge more for goods and situations spiral into full inflation.

4) Merits and demerits of Flax tax

This is a system in which the country uses a particular margin to tax the income of individuals as well as corporations. A flax tax can also be applied in conjunction with deductions; once all deductions are completed the rest of the income is taxed.

Adam smith indicates that a flax tax makes the computation of tax much easier since it is simple. Individuals as well as corporations find it easier to understand and report. The simplicity also goes to the government functions, where regulatory boards do not need to invest much in terms of ensuring implementation.
A flax tax system is much easier to understand for the citizens which ensure that they have much more support for it as opposed to progressive and regressive tax which is more difficult.

5) Tax burden in the UK

The tax burden is often defined as the excess total amount deducted during a taxation period. The tax burden is the subject of many political speeches, with focus being on policies to reduce the tax burden which is often inflated by government expenditure.

The average tax burden suffered by citizens of the UK is at least one fifth higher than the average global tax burden. As a result, the country has experienced reduced investment over time in addition to a lowered state of wealth creation. Larger companies including general motors and other chains have threatened and may indeed be on the way to seek out markets with lower tax burdens where the profits experienced will definitely be higher.

6) Progressive, regressive and proportionate tax

A progressive tax is dependent on the income of the individual, as the individual earns more, the tax level increases. On the other hand, a regressive tax, taxes more to the individual when the income becomes lower and decreases. Progressive taxes often discourage investment by individuals and are often prone to tax evasion cases.

Proportionate taxes on the other hand, charge the same margin despite the income level. Individuals are expected to remit a particular amount to the government in the form of taxes.

7) Why vat is a regressive tax

In order to meet their basic needs, low income earners are often forced to spend a larger portion of their income. Such income is spent on goods for basic needs, which means that they pay a larger portion of VAT. Top earners in addition have saved a majority of their income, which is left over after they have bought all they need in the financial year. On the other hand, low income earners often have to resort to borrowing to meet their basic requirements. With VAT, the cost of goods increases forcing the low income earners to spend even larger portions of their income.

It is also important to note that large income earners are often bale to purchase goods in bulk paying much less VAT. On the other hand, low income earners are forced to rely on smaller qualities which they continue replacing over time, thereby paying even more VAT.

8) Marginal tax rates

It is often thought and argues that reduction in tax rates is vital in ensuring increased productivity. Individuals become more inclined to work more and therefore produce more. This in turn means an increase in tax revenue as the income and expenditure level both increase giving opportunities for the revenue boards or collect more tax.

In addition, individuals are more inclined to invest in small business ventures and entrepreneurship opportunities. Since people are taking more risks and investing more, there is an increase in taxable income which in turn means an increase in tax income.

Reduced marginal tax rates, also increases the rate of private savings by individuals. This keeps income in rotation for some time providing a more stable source of income for tax. Private saving also increases the income of banks and financial institutions which is also available for taxation.

9) Claimant versus labor force measurement of unemployment

The claimant count covers those individuals who seek unemployment payment as well as job seekers allowance. It is assumed that all individuals who are eligible for this allowance are unemployed and therefore are included in the analysis of a country’s unemployment rate (Haugen and Musser 2011). However this statistic has a major weakness in that majority of the time individuals may not register for these allowances yet they remain unemployed. In addition, such registrations are often prone to fraud.

The labor force survey however is much more wholesome in that it takes into account all people without any form of employment whether part time or otherwise. It is also much more current as it takes into account the amount of time that individuals have remained unemployed that is, the last time that they earned any sort of income.

10) Disaggregation of unemployment

Disaggregation means making a comparison of the unemployment with current vacancies. Majority of the countries often ignore the importance of this statistic which is vital in understanding the true nature of unemployment. For example, UK unemployment has been at an all time high, for a few years which has led economists to conclude that this is an issue of mismatched skills. That is, the available labor lacks the adequate skills to fill the vacancies. This can only be found through disaggregation of unemployment, which allows an analysis of all the causes of unemployment. The country is therefore able to invest directly to the perfect solutions for unemployment. The result is that unemployment is able to be reduced with the right policies.

Disaggregation also provides a better understanding of the level of education versus the conditions and duration of unemployment. In essence it allows for a better understanding of the relationship between the causes of unemployment and the rates of current unemployment.


Berlatsky, N. (2013). Inflation. Detroit, Mi, Greenhaven Press.

Haugen, D. M., & Musser, S. (2011). Unemployment. Detroit, Greenhaven Press.

Rate this post
Table of Contents