Answer to Question #130215 in Economics for Ashane

Question

Discuss how a more even distribution of income may affect the pattern of expenditure in an economy

Answer 1

Most of the wealth belongs to a minority of people. If you increase the tax for the rich and increase

subsidies for the poor, the cash flow increases and GDP too because of 

growing of demand. But, if the tax will be too big, people will lose the motivation to create business because the risk reward will be too small. As a result number of enterprises will decrease and unemployment increase and GPD will down. You should find the balance between taxes and subsidies.