Learning Journal Unit 8 ECON 1580 PDF

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Learning Journal Unit 8 In at least three well composed paragraphs, please describe the effect that changes in business taxes, personal income, and transfer payments have on a country’s gross domestic product (GDP).

Introduction To answer the question fully, let us first try to understand what Gross domestic product (GDP) is. Gross domestic product (GDP) can be defined as “the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.” (Fernando, 2021). The Gross domestic product (GDP) is a very important tool to any country because it helps countries in determining whether the goods and services produced in that country are making the economy grow or contract. The general health of any economy is seen by how well its Gross domestic product (GDP) is growing. There are 4 types of Gross domestic product (GDP) which affect the economy differently. These are; Real Gross domestic product (GDP), Nominal Gross domestic product (GDP), Actual Gross domestic product (GDP) and Potential Gross domestic product (GDP). Changes in Business taxes and Personal income When there are changes in business taxes, the Real Gross domestic product (GDP) is affected accordingly. For example, when the business tax is increased by 1%, the Real Gross domestic product (GDP) and the price levels will decrease by approximately 2% to 3%. This increase will in return reduce disposable income from households and this means that people will spend less, save less and consume less. In short, this will affect the economy badly as this

will cascade or go all the way into the economy. The opposite is true when the business tax is reduced or decreased, Real Gross domestic product (GDP) and the price levels will increase which will in turn increase households disposable income. And this will also increase consumption and saving power in the economy and thereby expanding the economy. Transfer Payments Finally, we can define transfer payment as “a one-way payment to a person or organization which has given or exchanged no goods or services for it.” (Segal, 2020). Transfer payments generally are used to describe payments made by governments such as social security, unemployment insurance, and student grants. These payments do not have any effect on Gross domestic product (GDP) because these are not counted as goods and services because nothing gets produced.

References: Fernando, J. (2021). Gross Domestic Product (GDP). investopedia.com. https://www.investopedia.com/terms/g/gdp.asp Segal, T. (2020). What Is a Transfer Payment? Investopedia.com. https://www.investopedia.com/terms/t/transferpayment.asp...