Discuss how effective a reduction in income tax would be in encouraging economic growth.

A cut in income tax means that workers have more disposable income. They are likely to spend some of this rise in income, leading to more demand in the economy. Firms will raise output to meet the increased demand, leading to economic growth; there will be a multiplier effect as increasing output will require more workers and demand will rise further. However, if workers just saved their extra income, this would not happen and the tax cut would not be effective. It is also possible that workers might decide to work less and maintain their take home payment.

RD
Answered by Rebecca D. Economics tutor

2185 Views

See similar Economics GCSE tutors

Related Economics GCSE answers

All answers ▸

What is the Philips Curve?


Explain how a fall in interest rates can affect total spending in the economy.


Using real life examples, explain the differences between the different market structures.


How does the World Trade Organisation (WTO) benefit developing countries?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning