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

question 44

Multiple Choice

In a two-period model, holding everything else constant, an increase in future 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, as long as Ricardian equivalence holds.

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Definitions:

Planned Value

The budgeted cost of work scheduled to be completed by a specific point in time during a project.

Cost Variance

The difference between the budgeted or baseline amount of expense and the actual amount spent.

Contingency Reserves

Funds or resources set aside to cover unexpected costs or risks in a project or budget.

Management Reserves

Funds set aside in a project budget by management for unforeseen work or risks, not part of the baseline budget but available for use as needed.