Question

Country Selected :AUSTRALIA

• Discuss how nominal and real GDP for your selected country are effected if there is a decrease in taxes and an increase in interest rates.

Answer 1

When tax rate falls, people have more disposable income in their hands, which allows them to spend more on production and thus, output or GDP increases. Also, with the decrease in the tax rate, real GDP increase as well since the increased production leads to the increase in the total value of the goods.

When interest rate increases, borrowing becomes more expensive and thus, the demand for goods and services reduces, reducing the real and nominal GDP.