Fundamentals of macroeconomicsInstitution
An Economy is usually influenced by a combination of various factors and activities. Economic activities such as purchasing of groceries, a massive layoff of employees, as well as decrease in taxes have influence on a country’s economy. The effect could be through the way each of the three activities affect the government, the way each cause effects on households, or the way the economic activities affect business. Each of the economic activities affects the economy at a different capacity.
Grocery purchasing is an economic activity that could be affected by economic changes but could also have effect on various economic players such as the government, households, and business activities. Household income reduction changes the shopping behavior of buyers. The grocery business plays a great role in offering employment in various scopes in which any changes influences household incomes, income taxes, and value-added taxes that goes to the government (Dora Gicheva, 2007). In this case, when grocery purchasing falls, it means that consumers of grocery products reduce their contribution to government funding through taxes imposed on food products. When food prices go up, the making choices in grocery purchases is impacted. Prices could increase due to the urge of the government to create more revenue from taxes on grocery commodities. Purchasing groceries may however be affected by other factors that relate to health issues, product availability, as well as the in-store services (Dora Gicheva, 2007). When purchasing of grocery decreases, businesses also decrease their supply or productivity in goods and services related to groceries. The result of this is decreased profits that go to households. Some businesses lay off workers who are key providers to their households thus lowering their living standards.
In the aspect of massive layoff of employees, the economy is deprived of some key human resources. The first effect on the economy is on the living standards and household income level. The households of those employees who are laid off face an instant decreased income. The people cut off from working are no longer able to contribute equally in government revenue creation through income tax. A massive layoff of workers from the government relieves the government from some of its expenditures but creates a problem on its social welfare contribution (McIntyre, 2011). When people are unemployed, they have less to contribute towards nation building and could engage in criminal activities. At the same time, workers laid off from the private sector increases businesses’ marginal profitability. The decrease in household incomes reduces people’s purchasing power thus freezing the aggregate demand and eventually productivity.
Tax deduction also affects households, businesses and the government differently. Tax deduction could be on income, on expenditure, and on the tax imposed on consumer items. Tax reduction is usually subjected to limitations and conditions. Tax deduction on income help increase households net incomes thereby increasing their purchasing power and living standards in which case consumers gain the power of access facilities they could hardly access before the tax deduction (Hoffman, William, et al., 2011). The increased purchasing power is beneficial to the general economy and businesses since the effect is transferred to the economic aggregate demand. Given that households have higher net incomes and could access cheaper goods due to the reduced taxes on consumer goods, they turn out to demand more of the same goods and services. Business increases their productivities and supply since the demand for their products is high. The government however gets lesser revenue from taxes if the same volume of goods and services is purchased (Hoffman, William, et al., 2011). Increased demand however could cause an effect whereby the total revenue increases and consumers purchase more goods and services and firms employ more workers thereby neutralizing the tax deduction effect on government.
Dora Gicheva, J. H.-B. (2007). Revisiting the Income Effect: Gasoline Prices and Grocery Purchases. Massachusetts : NBER Program(s): EEE EFG IO PE.
Hoffman, William, et al. (2011). Individual Income Taxes. annual editions; 2011 edition ISBN 978-0-538-46860-2.
McIntyre, D. (2011, June 15). Layoffs Are Back: This Time, Public Sector Will Bear the Brunt. Retrieved March 11, 2013, from dailyfinance.com: HYPERLINK “http://www.dailyfinance.com/2011/06/15/layoffs-are-back-this-time-public-sector-will-” http://www.dailyfinance.com/2011/06/15/layoffs-are-back-this-time-public-sector-will-bear-the-brunt/