A decrease in tax to GDP ratio of a country indicates which of the following? 1. Slowing economic growth rate 2. Less equitable distribution of national income Select the correct answer using the code given below.

This snippet frames the precise proposition as an exam-style question, listing 'slowing economic growth rate' as a possible interpretation of a falling tax-to-GDP ratio.

A student could treat this as a hypothesis to test using data on tax/GDP and GDP growth across years or countries to see how often they co-move.

Explains that a falling GDP growth rate can coexist with rising real GDP levels (growth slowdown vs level), clarifying that 'growth rate' and 'output level' are distinct concepts.

Use this distinction to check whether a falling tax/GDP coincides with lower GDP growth rates (speed) rather than a fall in GDP level; compare growth-rate series rather than levels.

Gives the concept of 'slowdown' where growth rate declines but output still rises, and defines recession vs slowdown.

Apply this rule to interpret a drop in tax/GDP: determine if it aligns with a slowdown (lower growth rate) or with other causes while output may still rise.

Defines tax buoyancy/elasticity: measures how tax revenues respond to changes in tax base or rates — linking tax revenue behaviour to GDP movements.

A student could use tax buoyancy/elasticity concepts to assess whether a drop in tax/GDP stems from weak tax responsiveness to growth (low buoyancy) or from actual weaker GDP growth.

Notes that raising tax/GDP is often achieved via a wider base and that higher GDP growth historically increased government resources — indicating two-way links between growth and tax ratios.

Combine this with external data on tax policy changes: check if falling tax/GDP coincides with tax-base narrowing or policy cuts rather than purely lower growth.