| If indirect taxes in an economy are increased, then which of the following can occur? |
| 1. GDP at factor cost increases |
| 2. GDP at factor cost decreases |
| 3. GDP at market price increases |
| 4. GDP at market price decreases |
| Select the correct answer using the codes given below. |
A) 1 only
B) 2 and 3 only
C) 3 only
D) 4 only
Correct Answer: C
Solution :
[c] 3 only. GDP (market price) = GDP (factor cost) + indirect taxes \[-\] subsidies. This equation makes it clear that any increase in indirect taxes will increase the GDP at market prices.
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