Which of the following explain how an increase in GDP results in more tax revenue?

Question

Multiple select question.

As GDP rises, incomes increase.

As GDP rises, sales of goods and services decline.

As GDP rises, imports fall.

As GDP rises, sales of goods and services increase.

Answer 1

The correct options that explain how an increase in GDP results in more tax revenue are:

1. As GDP rises, incomes increase.
   Higher GDP generally indicates that businesses are producing more and often paying higher wages, leading to increased income tax revenue.

2. As GDP rises, sales of goods and services increase.
   When GDP increases, consumer spending typically rises as people have more income, leading to higher sales tax revenue and corporate tax revenues from businesses earning more.

The other two options do not provide a direct link to increased tax revenue related to rising GDP:

2. As GDP rises, sales of goods and services decline. (This is incorrect; sales typically increase with rising GDP.)

3. As GDP rises, imports fall. (While this may have some implications for taxation, it doesn't directly contribute to increased tax revenue in the same way as the other two options.)