In a Simple Macro Model, an Increase in Households' Wealth

question 50

Multiple Choice

In a simple macro model, an increase in households' wealth is generally assumed to

• A)cause no change in desired consumption because the increase is always expected.
• B)cause no change in desired consumption because consumption is a function of disposable income only.
• C)affect only desired saving, not desired consumption.
• D)cause an upward shift in the aggregate consumption function.
• E)cause a downward shift in the aggregate consumption function.

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Definitions:

Deferred Tax Liabilities

Future tax payments a company owes but has not yet paid, often arising from timing differences between accounting practices and tax laws.

Deferred Tax Assets

Deferred tax assets are items on the balance sheet that reduce future tax obligations because of overpayment or advance payment of taxes or future tax benefits due to allowable temporary differences.

Book Income Tax Expense

The amount of income tax expense that is reported on the financial statements, which may differ from the actual tax paid due to differences between accounting and tax rules.

Temporary Difference

A difference between the carrying amount of an asset or liability in the balance sheet and its tax base, which will result in taxable or deductible amounts in the future.