If Consumers Foresee Future Taxes Completely,a Reduction in Taxes This

question 31

Multiple Choice

If consumers foresee future taxes completely,a reduction in taxes this year that is accompanied by an offsetting increase in future taxes would cause

• A)an increase in the real interest rate and a decrease in desired investment.
• B)a decrease in the real interest rate and an increase in desired investment.
• C)a decrease in the real interest rate and an uncertain effect on desired investment.
• D)a change in neither the real interest rate nor desired investment.

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Definitions:

Market Equilibrium

The state in which the supply and demand for a good or service are balanced, leading to a stable price.

Consumer Surplus

The variance between the total price consumers are ready and able to fork over for a good or service and the sum they ultimately pay.

Deadweight Loss

A loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is not achievable.

Consumer Surplus

The difference between the total amount that consumers are willing to pay for a good or service and the total amount they actually do pay.