Question

A recent report on GDP growth rates showed that the GDP of Dorada, a developed economy, has declined by 1.5 percent this year. Emily George and her friend Tabitha Jude, both students of economics, are discussing the possible reasons for the decline in the growth rate. Emily feels that the government deficit has reached an unsustainable level, as a result of which interest rates now are extremely high. This has reduced government expenditure in recent times, leading to a decline in GDP. Tabitha however disagrees. According to her, the fall in GDP must imply a fall in consumer spending as household consumption accounts for the largest share in Dorada's GDP Which of the following, if true, will weaken Tabitha's argument?
A. The government of Dorada recently introduced a new medical care program for lower-income individuals
B. The government increased income tax rates by 0.75 percent this year for each income tax bracket. and senior citizens.
C. The interest rates on bank deposits have increased by 1 percent.
D. Although sales tax rates remained unchanged, the government's revenue from sales taxes increased considerably this year
E. The government of Dorada has recently raised the price ceiling on house rents.

Answer 1

Answer:

D. Although sales tax rates remained unchanged, the government's revenue from sales taxes increased considerably this year

Explanation:

If revenues froms sale tax have increased, then, consumption has increased too. A sales tax is a form of consumption tax, hence, consumption and revenues from this tax are correlated, and are directly proportional. This would weaken Tabitha's argument if true.