Answer to Question #290622 in Macroeconomics for tin 14tin

Question

In the 2015 budget speech, the Minister of Finance announced an increase in taxes amounting to R17 billion in the 2015/16 financial year. In the context of the circular flow, this increase in taxes will be a(n) 

Answer 1

Solution:

The increase in taxes will be a withdrawal in the circular flow of income.

 

Withdrawals are variables in an economy that leak out of the circular flow of income and decrease the national income size. This includes taxes that reduce the disposable income of consumers, thus limiting their consumption levels.