Microeconomics analysis of taxes, economic stimulus, and inflation predictors on economies
Abstract
Any economy is susceptible to shock and stimulus of any kind, which is countered in
various manners to maintain a good living environment for the citizens. The responsibility of the
governments is to design appropriate measures during their policy reformations to create the
countering measures. Various tools are also used to manage and ease this process. This paper has
two parts. The first part is my opinion which is against imposition of taxes to the rich, while the
second part is a discussion about the fails of economic stimulus and how inflation predictor can
be modeled to maintain low levels of inflation.
Impracticability of imposing taxes on the rich
Added taxes to the rich people is not redeeming strategy to the economy. A popular
opinion is that wealth tax is for the purposes of shifting the burden of tax to the most affluent
individuals. (Scheuer, 2021) I disagree with this since the process for tax reformations is costly.
Tax reformations is time consuming process which requires appropriate formulations and
variations to design a well evaluated taxing framework. According to (Gamage, 2021) , the author
publishes a report to examine how wealth taxes utilizes a combination of assessments and
reviews to reach at accurate valuation. (Daly, 2021) The process also requires funding with other
resources, implying that they will have to collect more revenue to cover the costs. For the strains
involved. I would say that wealth taxes only adds more burden to the government
Changes in consumer taxes affects their spending which is equally applied to every
consumers. Lower income taxes raises the spending power thus increases the aggregate demand.
Thus, with the vice versa, when income taxes are raised the purchasing power is lowered and
hence the aggregate demand is lowered. Impact of increasing taxes of the rich will thus affect
their spending, in than they will purchase lesser than before. Quantities of total consumption
units will be noticeable that it may affect a shift in the aggregate demand curve downwards. This
reduced aggregate demand implies less sales which is typically leads to lesser revenues
confirming a minus to the income of a country. However this applies when other factors are
maintained at a constant. (Scheuer, 2021) If taxes are raised but there is no increase in the
income earned, this will directly trickle down to lower Gross Domestic Product explaining why
it is unreasonable to raise the taxes upon the rich.
Stimulus and inflation predictors
The failures of use of economic stimulus interventions
Stimulus in economics is the fiscal strategies governments use to provoke response on
private sectors. It is majorly useful in the times when the economy is under recession. The policy
tools commonly used are increase of government spending, lowering of interest rates, as well as
quantitative easing. Recessions are mostly caused by shortage in the aggregate demand of goods
and services in the economy. The two types of stimulus used to reboot the economy back to
normal are fiscal and monetary stimulus. Stimulus is an important targeting strategy which I
would recommend for economic enhancement if well calculated.
Government intervention through crowding out as suggested by David Ricardo, reduces
on private investments through raising of the labor demand which causes increase in wages thus
hurting business profits. Additionally, deficits get to be financed in a short timelines thus causing
marginal increases in the interest rates hence it gets expensive for a businesses to obtain
investments financing. Ricardian equivalence suggest that the effect of crowding up as indicated
rotates around the perception that people respond to incentives. (Andreolli, 2021) They act in
manner that offsets and overlooks the policy of stimulus. Respond anticipated will not be simple
multiplier effect though will comprise these offsetting behaviors.
Use of economic stimulus further may prevent economic recovery and adjustment. This
is evident from economies that focus on the causers of recession, and dispute the usefulness of
economic stimulus policy. The Australian Business Cycle theory recession is brought about by
mistakenly liquidating investments introduced by previous inaccurate market conditions and
relocations involving resources in conjunction with fundamentals of economics. The real
business cycle theory simply views use of stimulus as recovery from a great economic shock.
(Andreolli, 2021) . Therefore in such ins
