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.

---

Definitions:

Cash Flows

The movement of money into and out of a business or financial entity, often analyzed to assess financial health.

Current Period

Refers to the present accounting period under consideration, which could be a month, quarter, or year, depending on the context.

Statement of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, categorizing cash flows into operating, investing, and financing activities.

Cash Balance

The amount of cash held by a company at any given time, as recorded in its financial statements.