Inflation and taxes SSEPF3: The student will explain how changes in monetary and fiscal policy can have an impact on an individual’s spending and saving.

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Presentation transcript:

inflation and taxes SSEPF3: The student will explain how changes in monetary and fiscal policy can have an impact on an individual’s spending and saving choices

Causes of Inflation Rapid rise in aggregate demand (AD) => demand pull inflation Rapid rise in aggregate supply (AS) => cost pull inflation

Effects of Inflation High inflation decreases purchasing power Savings decline => banks suffer

Who’s Most Affected by Inflation? Low-income and people on fixed incomes (retired)

Who Benefits from Inflation? People who owe money (value of money paid back is less than the value of money originally borrowed)

Tax Structures #1 – Proportional Taxes “Flat Tax” Everyone pays the same percentage of their income Social Security

#2 – Progressive Taxes “Graduated” tax rate Percentage of income taxed increases as income increases Personal income tax

#3 – Regressive Taxes A tax that takes a larger percentage from low-income people than from high-income people Sales tax, property tax, excise tax For example, if a person has $10 of income and must pay $1 of tax on a package of cigarettes, this represents 10% of the person's income. If the person has $20 of income, this $1 tax only represents 5% of that person's income.

Practice #1 Type: _____________ Income % of Income Amount of Tax Paid $30,000 25% 15% $60,000 20% $100,000

Practice #2 Income Amount of Tax % of Income $25,000 $6,250 25% $50,000 $10,000 20% $100,000 $15,000 15% Which kind of tax does the data in the table illustrate? A. proportional B. regressive C. progressive D. property

Practice #3 Which of the following might benefit from spiraling rates of inflation? A. an investor B. a saver C. someone who has lent out money D. someone who has borrowed money