Which of the Following Explains, at Least in Part, Why

question 6

Multiple Choice

Which of the following explains, at least in part, why it is difficult to predict how far an IS curve will shift in response to a change in tax policy? A change in tax policy

• A) works by changing disposable income and thus indirectly personal consumption; the link between income and consumption is uncertain.
• B) generates a response that depends on the uncertain perception of the permanence of the change.
• C) implies a change in the government's intertemporal budget constraint and its future need for revenue; people with different perceptions of that need react differently to a tax change.
• D) creates an uncertain shift in an IS curve for all these reasons.
• E) none of the above.

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