Explain the effect on economic growth if a government increases income tax (ceteris paribus).
An increase in taxation reflects tighter fiscal policy, reducing the take home pay of those employed. This will reduce the amount of income that households are willing to spend on goods and services in the economy. As consumption spending is a component of aggregate demand, it will result in a lower level of GDP (Gross Domestic Product) and lower economic growth.
Related Economics A Level answers
All answers ▸What are the likely impacts of a sustained budget deficit for an economy?
Explain which barriers to entry an new airline might face when entering the international flight market
How are inflation and unemployment linked?
State and explain two ways in which domestic fuel consumption gives rise to negative externalities.