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

question 74

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)a rightward shift in the saving curve and a rightward shift in the investment curve.
• B)a shift in neither the saving nor the investment curve.
• C)a leftward shift in the saving curve, but no shift in the investment curve.
• D)no shift in the saving curve, but a rightward shift in the investment curve.

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Definitions:

Cost of Equity

The return that investors expect for investing in a company's equity, indicating the compensation the market demands for taking on the risk of owning the stock.

Weighted Average Cost of Capital

The average rate of return a company is expected to pay its security holders, weighted by the proportion of each finance source in the company's structure.

Bonds

Fixed-income investment products representing a loan made by an investor to a borrower, typically corporate or governmental.

Preferred Shares

A class of ownership in a corporation that has a higher claim on assets and earnings than common shares, usually with fixed dividends.