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(a) Mention two points of distinction between tax on income and tax on commodity.

(b) Name the most popular tax system. Give one reason.


(c) Differentiate between productive and unproductive debt. 

(d) What is demand pull inflation?

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(a) 1. In case of a tax on income, the tax payer can not shift the burden of tax on anybody else. Here, the initial impact and the final incidence of tax burden are on the same person. 

2. However, in case of a tax on commodity, the tax payer can easily shift the burden of tax. Here, the initial impact and the final incidence of tax fall on different persons. For instance, in case of sales tax, the seller can shift the burden of tax on the consumer, by rising the product price. 

3. Tax on income is progressive tax whereas tax on commodity is regressive tax. Some people are exempted from tax on income whereas none is exempted from tax on commodity. 

(b) The degressive tax system which is a mixture of proportional and progressive tax system is the most popular tax system. Under this system, rate of tax increases upto a certain limit but after that a uniform rate is charged. By this higher income groups makes less sacrifices than lower income group. 

(c) Perfectly elastic demand curve:

(d) Demand pull’ inflation means inflation generated by the pressure of excess demand in the economy. If there is an excess of aggregate demand in the economy over aggregate supply, the general price level will tend to increase i.e., there will be inflation.

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