Question

Suppose the U.S. government increased its spending on infrastructure and paid for this increased spending with a tax on consumption. How would this policy affect economic growth?

Answer 1

Answer: Economic growth will be negatively affected as there will be a decline in the demand for goods and services.

Explanation:

Economic growth is the increase in the output of goods and services in the economy. A consumption tax on goods consumed would lead to an increase in price which in turn, leads to a fall in the real income of comsumers.

The fall in real income of consumers will lead to reduction in the demand of goods which will also lead to the reduction in the GDP of a country.