Fundamentals of Macroeconomics paper Research Example | Topics and Well Written Essays - 500 words

Fundamentals of Macroeconomics - Research Paper Example Real domestic product however defines the value of a country’s total production in goods and services at constant base prices of the commodities. Such a basis may be each commodity’s price in a given year (Mankiw, 2011). Purchasing of groceries reduces amount of money among the purchasing households and increases amount of money held by businesses. It also increases government revenues through tax on the groceries. It however has no economic value on households and business because it involves exchange of similar values. The government however derives economic gain in the taxes (Mankiw, 2011). The layoff reduces households’ revenues because of its unemployment effect on members of households. It also adversely affects businesses through reduced revenues because of households’ lower spending power. Layoffs also affect the government through lost revenues in income tax. The government’s revenue is further reduced because lower purchasing power into reduced demand results in low revenues from value added tax (Mankiw, 2011). Decrease in tax has the effect of increasing households’ money reserves from both direct and indirect taxes. A decrease in direct tax results in higher income and a decrease in indirect taxes leads to lower commodity prices that allows for more savings by households. The effects of reduced tax on households also mean their increased purchasing power that suggests an increase in sales and revenues among businesses. The government however losses revenues that it would however earn at higher taxes (Mankiw, 2011). Purchasing groceries has no net economic flow between households and businesses because it is a mere exchange of equivalent values between the two parties. Money, however, flows from both businesses and households to the government in taxes (Mankiw, 2011). Lowering taxes identifies a virtual transfer of