Question
Inflation acts as a tax in the economy. This tax is:
Answer: Option B
Answer: (b)
If the price of a product increased from Rs. 30 to Rs. 40 i.e. an increase of Rs. 10. For a poor person earning Rs. 1000, it is 1% tax, but for a rich person earning Rs. 1,00,000, it is 0.01% tax.
So, as a percentage of his income, a poor person is paying tax 1% but the rich person is paying tax only 0.01%. Hence its regressive (tax % is less for rich people and more for poor people)
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Answer: (b)
If the price of a product increased from Rs. 30 to Rs. 40 i.e. an increase of Rs. 10. For a poor person earning Rs. 1000, it is 1% tax, but for a rich person earning Rs. 1,00,000, it is 0.01% tax.
So, as a percentage of his income, a poor person is paying tax 1% but the rich person is paying tax only 0.01%. Hence its regressive (tax % is less for rich people and more for poor people)
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