When Consumers Lend at a Lower Rate Than They Borrow,a

question 5

Multiple Choice

When consumers lend at a lower rate than they borrow,a decrease in current taxes implies

• A) current consumption increases by the amount of the tax cut.
• B) current consumption remains unchanged.
• C) both current and future consumption increase.
• D) current savings increases by the amount of the tax cut.
• E) current consumption decreases and future consumption increases.

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Definitions:

Economy Produces

Refers to the total output of goods and services generated by an economy within a specific period.

Real Balance Effect

The influence a change in household purchasing power has on the quantity of real GDP that consumers are willing to buy.

Depression

A severe and prolonged downturn in economic activity, characterized by significant declines in GDP, high unemployment, and deflation.

Aggregate Demand

The total demand for goods and services in an economy at a given overall price level and in a given time period.