In a Two-Period Model, Holding Everything Else Constant, an Increase

question 45

Multiple Choice

In a two-period model, holding everything else constant, an increase in current taxes

• A) unambiguously increases the current account surplus.
• B) unambiguously decreases the current account surplus.
• C) has an uncertain effect on the current account surplus.
• D) increases the present value of taxes.
• E) has no effect on the current account surplus.

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Definitions:

Common Shares

Common shares represent units of ownership in a company, giving shareholders voting rights and a portion of the profits through dividends, subject to corporate performance.

Accrued Interest Expense

Interest expense that has been incurred but not yet paid during an accounting period.

Installment Note

A debt instrument that requires a series of payments over time until the total debt is paid off.

Callable Bonds

Bonds that can be redeemed by the issuer before their maturity date at a predetermined price.