If VAT rates rise, then costs are likely to ___ and demand is likely to ____?
Correct answer: B. rise; fall
- A. rise; rise
- B. rise; fall
- C. fall; fall
- D. fall; rise
Explanation
A higher VAT raises the tax-inclusive price paid by consumers and increases firms' tax-related selling costs. Higher prices normally reduce the quantity demanded, so costs rise while demand falls.
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Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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